ECB heading for next rate hike – Finance
The European Central Bank will raise interest rates again on Thursday and offer other hikes while inflation remains too high, especially as an improving economic climate eases concerns about monetary tightening.
After many years of cheap money, the institution led by Christine Lagarde has taken the lead since the summer shock interest policy It was intended to cool economic activity in hopes of taming price inflation caused by Russia’s war in Ukraine. A return to relative calm in energy markets allowing inflation to fall for the second month in a row to 9.2% in December, well above the 2% target.
A fly in the ointment: “core” inflation – excluding energy, food, alcohol and tobacco – increased again in December and reached 5.2%. Rising energy prices are polluting the entire economy, with significant wage increases expected this year to offset losses in purchasing power.
On the positive side, the latest indicators allay fears for the European economy, this winter will be able to escape the recession, which was considered inevitable only a short time ago. Thanks to improved supply chains, the reopening of China after health restrictions and government aid in the euro zone, activity resumed in January after a six-month contractionAccording to the latest PMI index from S&P Global.
Between the sustainability of the economy and the sustainability of core inflation, Christine Lagarde has “no choice but to reconfirm”at Thursday’s monetary policy meeting, “The December commitment is to provide a 0.5 percentage point increaseIt should continue in March,” Pictet chief economist Frédéric Ducrozet told AFP.
This new increase will bring the unallocated bank cash lending rate to 2.5%. and on operations short-term refinancing 3.0%, It hit its highest level since November 2008, ING economist Carsten Brzeski said. “The reason for raising the child rate by 0.50 points is clear: the ECB’s work is not done,” he summarizes, reducing inflation.
At the US Federal Reserve (FED), along with a period of monetary tightening, officials expect more modest increases of 0.25 percentage points. after this week’s meeting and again in March. In the Atlantic, signs of recession are growing and inflation is slowingAccording to economists at ING, “rate cuts are on the agenda at the end of the year”.
The ECB will need to raise interest rates at a “sustained pace” to reach “sufficiently restrictive levels”.that is, to punish activity and “stay there as long as necessary” to deal with high inflation, Ms Lagarde recently warned. Consumption is still highinstitute will want “compensate for the query not being autocorrected”a key element of price declines, Axa’s chief economist explains to AFP Gilles Moec.
Inflation as a compass
If Thursday’s rate hike of 0.5 points is not in doubt, ING analysts note that all eyes are already on “the March meeting (which will include a new set of economic forecasts)”. They stress that these inflation and growth forecasts “should strongly influence the ECB’s decision”.
Already, opinions differ among the members of the Governing Board of the ECB.
From”falconsA follower of restrictive monetary policy, German Federal Bank President Joachim Nagel “wouldn’t be surprised” if interest rates continue to rise after March, he told Der Spiegel magazine.pigeonsFabio Panetta, a member of the ECB’s executive board who favors a more flexible approach, said he was against “any unconditional guidance” on interest rates after February.
The pace and timing of monetary tightening after March “will depend on the global economy between the slowdown in the US and the reopening in China,” concludes Mr Ducrozet.
After years of cheap money, the institution, chaired by Christine Lagarde, is implementing a shock interest rate policy aimed at cooling economic activity over the summer in hopes of taming inflation fueled by Russia’s war in Ukraine. A return to relative calm in energy markets allowed December inflation to fall to 9.2% for the second month in a row, despite remaining well above the 2% target.. Downside: “core” inflation – energy, food, alcohol and tobacco – again in December It increased to 5.2%. The increase in energy prices pollutes the entire economy, significant wage increases are expected this year to compensate for the loss of purchasing power. Activity rebounded in January after six months of contraction, according to S&P Global’s latest PMI, thanks to an improvement in supply chains, China’s reopening after health restrictions and government aid in the euro zone. .December commitment Frédéric Given the persistence of the economy and core inflation, Christine Lagarde “has no choice but to reaffirm her commitment to guarantee growth of 0.5 percentage points for December,” said Ducrozet, chief economist at Frédéric Pictet, at Thursday’s monetary policy meeting. Credit was at 2.5% and short-term refinancing operations at 3.0%, the highest since November 2008, he told AFP. The CBA is far from over,” ING economist Carsten Brzeski summed up the decline in inflation. At the more advanced US Federal Reserve (Fed) in an era of monetary tightening, officials expect more modest hikes of 0.25 percentage points at this week’s meeting and then in March. According to ING economists, recessionary signs are intensifying and inflation is slowing across the Atlantic, pointing to “interest rate cuts on the agenda at the end of the year to cap levels,” meaning they “stay there as long as necessary” to punish activity and deal with high inflation. recently warned Ms Lagarde. Axa’s chief economist told AFP Gilles Moec that consumption is now at a high level, the institute will want to “compensate for the lack of a spontaneous correction in demand”, a key element in the rate cut. Thursday’s one point increase in rates no doubt, all eyes are already on the “March meeting (which will include a new set of economic forecasts),” ING analysts note. They note that these inflation and growth forecasts “should have a strong influence on the ECB’s decision. Opinions are already divided among the members of the ECB’s Executive Board. German Federal Bank President Joachim Nagel “would not be surprised” if interest rates continue to rise after March. . , he told Der Spiegel magazine. Among the “doves” in favor of a more flexible approach, Fabio Panetta, a member of the ECB’s executive board, said he was opposed to “any unconditional guidance” on interest rates after February. The global situation between the slowdown in the US and the reopening in China”, concludes Mr Ducrozet.