Fight against inflation: no leeway for central banks

Tdespite the market turmoil surrounding the situation of the banks there is for the central banks no room to relax in their fight against inflation. That’s what Franck Dixmier, head of bonds at Allianz Global Investors, says in an interview with the FAZ stop. Dixmier sees the announcement of the loan program as an important signal because it amounts to an implicit guarantee for the regional banks.

Compared to the situation before the 2008 financial crisis, he believes that the big banks are now much more resilient. They had high equity and liquidity buffers. The Fed and the European Central Bank (ECB) are still a long way from controlling inflation for the bondsman. “In order to remain credible, they cannot stop interest rate hikes now.” The Governing Council of the ECB is meeting this Thursday and, despite the recent turbulence in the banking sector, is likely to stick to its already announced increase in the deposit rate by half a percentage point to 3.0 percent hold onto.

Dixmier considers it remarkable that the ECB, despite the significantly higher price increase, inflation expectations on the market at a level of 2.5 percent. “But market expectations could shoot up quickly if the ECB now deviates from its tightening course,” he warns.

The turnaround in interest rates he sees it as a very healthy development. In times of negative interest rates, there were price distortions that made it difficult to assess future developments. That has now changed. Should the ECB ever reach the end of its rate-hike cycle, that would be the time for Dixmier to return to long-dated bonds. The market currently sees the end of the ECB rate hike cycle at around 4.5 percent.

On the bond market, what matters to him is the active selection of risks. In a passive index fund (ETF) the investor invests in the full universe and thus also in bad risks. “Our goal as active fund managers is to win by avoiding the bad risks,” he stresses. Dixmier points to his fund company’s advanced fixed-income products, which have always outperformed the relevant index. He also doubts that bond ETF products can always be traded in the market.