HomeIndiaDetermined, the ECB raises its rates again and anticipates other hikes

Determined, the ECB raises its rates again and anticipates other hikes

The European Central Bank maintained pressure on inflation on Thursday and raised interest rates by half a percentage point, showing its firmness by announcing in advance that it would carry out the same hike in the month of March.

ECB President Christine Lagarde killed the suspense in December, promising a second increase of 0.50 points in a row for February. But the euro guardians surprised by warning on Thursday that they would raise rates again by the same magnitude at their next meeting in March.

Even if this announcement is “ not irrevocable”, the “ current scenarios ”, on inflation in particular, suggest that the time has not come to slow down the cycle of increases, said Ms. Lagarde to the press.

“We still have a long way to go, we know it’s not over,” insisted Ms. Lagarde, after having repeatedly hammered home the ECB’s desire to “stay the course” of monetary tightening.

The ECB is battling a massive price spike triggered by Russia’s war in Ukraine, which led it to launch a round of rate hikes in July, unprecedented in its scale and ending nearly a decade of money not dear.

Optical illusion

While in the USA, inflation peaked in June 2022, the phenomenon is much slower in the euro zone: the rise in prices only peaked there in October, at 10.6%.

In January, inflation in the euro zone fell for the third consecutive month, to 8.5%, more than expected by economists thanks to the decline in energy prices. But it remains well above the target set by the central bank, i.e. 2% in the medium term.

It is also a sham improvement because “underlying” inflation – excluding energy and food – remained at 5.2%, recalled Ms. Lagarde.

This structural inflation “ is there and very much alive ”, she insisted.

Unlike the US Fed, the Frankfurt institution therefore believes that it is still too early to moderate its monetary tightening.

On the other side of the Atlantic, the Federal Reserve of the United States indeed raised its main rate on Wednesday for the eighth time in a row, but slowed the pace compared to previous increases.

The three ECB rates were raised on Thursday to a range between 2.5% and 3.25%, the highest since November 2008.

The ECB has all the less scruples about tightening the monetary screw further as the euro zone should escape a recession this winter, thanks to a slight growth in GDP (+ 0.1%) in the fourth quarter of 2022.

The eurozone economy is proving to be “more resilient” than expected in the face of headwinds from the energy crisis and the war in Ukraine, Lagarde acknowledged Thursday.

And after ?

How far will the ECB raise its rates?

For Carsten Brzeski, economist at ING, the ECB “opened the door on Thursday to a pause or a slowdown in the pace of rate hikes after March”.

On the contrary, Andrew Kenningham, chief economist for Europe at Capital Economics, believes that there is no indication of “a clear change in the direction of monetary policy”.

Christine Lagarde did not favor any option, indicating that future increases “will remain dependent on economic data”. “It could be 0.50 points, it could be 0.25 points, it could be what is needed […] in order to reach our inflation target of 2% in the medium term”, she pointed out. .

Defining the slider risks rekindling the debate among central bankers.

The “hawks”, supporters of firmness, who now dominate in Frankfurt, should plead to keep interest rates at a high level, at least until 2024, while the doves are in favor of a more flexible monetary policy.

Before the ECB’s decision, the Bank of England raised its key rate by 0.50 percentage point to 4%, the highest level since 2008, to counter inflation which still exceeds 10% in the United Kingdom.

To see in video

Related news

Things to Keep In Mind Prior to Getting Nail Extensions

Simply because it's so simple and can add so much glitz to the nails, the fad of having long, gorgeous nails through nail extensions is catching on quickly

Delhi Records Highest Maximum Temperature for February in Two Years

The weather department has predicted shallow fog for Monday morning. The maximum and minimum temperatures are likely to settle at 32 and 12 degrees Celsius, respectively

Motorola Defy Rugged Smartphone to Get Bullitt’s Two-Way Satellite Messaging Service: Report

Motorola will reportedly introduce satellite messaging service on its upcoming Defy rugged smartphone. The company has partnered with Bullitt to bring Satellite connectivity to Android devices. The feature is currently available on iPhone 14 and iPhone 14 Pro models.

top of the week