2023-07-09 15:02:37
by Leigh Thomas and Mathieu Rosemain
AIX-EN-PROVENCE, July 9 (Archyde.com) – An unusually long time for rate hikes to diffuse through the economy leaves business leaders puzzled, unsure whether to prepare for a hard landing or gently.
Although central bankers in the United States and Europe have raised rates at the fastest pace in decades in an attempt to stem soaring inflation, most economies have so far escaped the painful recessions that previous ones cycles of monetary tightening have provoked.
Faced with this delay effect, the leaders met at the Economic Meetings of Aix-en-Provence this weekend wondered when, and to what extent, the increase in the cost of money would affect them, especially sir other turns of the screw follow.
“There is currently no real consensus on raising rates among all economic players,” Jérémie Delecourt, deputy managing director of private equity firm Ardian, told Archyde.com.
“That everyone is asking the question makes the situation interesting. There are those who remain optimistic, and others who are more pessimistic.”
François Villeroy de Galhau, governor of the Banque de France and member of the ECB’s governing council, said during an intervention in Aix that the high point for euro zone rates was near after a cumulative increase of four points percentage over the past year.
But he also said interest rates would be kept high for as long as it takes to ensure inflation returns to the European Central Bank’s 2% target by 2025.
The ECB raised rates last month to their highest level in 22 months and promised a big hike this month, with the possibility of a further tightening in September.
Jean-Louis Girodolle, who heads the Lazard bank in France, estimated for his part before a panel that the central banks risked fighting against inflation with the same zeal as in the face of deflation, and going too far.
“The other scenario, which I dread, is that of the missed landing, it is that of ‘whatever it takes’ in reverse,” he said, referring to the promise of former ECB President Mario Draghi in 2012 to overcome the eurozone debt crisis.
“IT’S GOING TO BITE”
The impact of rate hikes is being felt less quickly than usual because many households and businesses have entered this period of higher money prices with solid levels of cash, the result of significant savings made during the coronavirus outbreak.
“The transmission (of monetary policy) is long overdue, but it will bite, I would say towards the end of this year,” said Aylin Somersan Coqui, head of German export credit insurer Allianz Trade.
“I see a fair amount of optimism in the short term, but I see a lot of downside risks if there is a policy error, especially from central banks,” she added.
Rate hikes would indeed start to bite at a time when corporate earnings and overall economic growth begin to falter, she said, while elections looming in many countries next year could hamper government efforts to help companies in difficulty.
Although corporate defaults are on the rise in many countries, they remain below pre-pandemic levels as many companies have fixed rate debt incurred when rates were ultra-low.
The question will arise in the coming months during refinancing operations.
“We can expect debt levels to be adjusted on a case-by-case basis without causing a systemic crisis,” said Daniel Barneix, head of AFTE, the French association of corporate treasurers and also director. deputy financier of the French building materials giant Saint-Gobain.
Despite all of these risks and uncertainties, supporters of a strict monetary policy believe that it is still preferable to tighten rates a little too much than to see the fight against high inflation fizzle out.
“You really have to avoid being accommodating on rates because then there is a big risk that inflation will come back, and then it will be hard and long term,” warned Archyde.com Veronika Grimm, a German government chief economists. (Gilles Guillaume for the French version)
1688918828
#Impact #rate #hikes #looming #businesses #perplexed