Bundesbank president Jens Weidman is stepping down and will leave at the end of the year. He is a notable hawk on the ECB council. The new German government will likely appoint a less hawkish successor. Perhaps Isabel Schnabel (currently on the ECB board) or somebody with similar mainstream views.

Weidmann’s resignation “for personal reasons” may tilt the debate within the ECB a bit more in a dovish direction. But not very much. He is not the only hawk on the ECB council. Also, many mainstream members on the ECB governing council would also be ready to phase out asset purchases earlier and raise rates earlier than current ECB guidance indicates if inflation were to surprise the ECB to the upside. Weidmann will still be there when the ECB council decides on 16 December by how much it will scale up the standard APP asset purchases and make them more flexible upon the likely end of - or phasing out of - its pandemic emergency purchases (PEPP) from April 2022 onwards.

This does not change our outlook for inflation or monetary policy: After a further surge in the next few months and a return to rates around 1.5% in late 2022 driven largely by base effects, we expect Eurozone inflation to rise to 2% by late 2023, well above the ECB’s September 2021 projection of just 1.5% inflation for 2023. As a result, we look for the ECB to phase out its asset purchases by September 2023 and raise rates for the first time again in December 2023.

Weidmann has oscillated between criticising the ECB and explaining ECB positions to the German public. After taking a very tough stance initially on unconventional ECB policies in reaction to unusual crises, he has come across as a bit less hawkish in recent years, emphasising that he largely agrees with the main thrust of ECB policies even if he is more concerned about inflation risks and would want to scale them back earlier than many other council members. A new Bundesbank president more in line with ECB mainstream may make it easier to explain the rationale of ECB policies to the German public.

Holger Schmieding

+44 7771 920377

Berenberg
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