ECB minutes “basically copy” the Fed: slow down but won’t stop raising interest rates
News from the Associated Finance Press, November 25 (Editor Zhao Hao)On Thursday (November 24), local time, the European Central Bank announced the minutes of its October monetary policy meeting. At the time, officials at the bank were concerned that inflation might become entrenched, requiring further increases in interest rates, the minutes showed.
At the October 26-27 meeting, the European Central Bank decided to raise the main refinancing rate, marginal lending rate and deposit rate by 75 basis points to 2.00%, 2.25% and 1.50% respectively. Since July, interest rates have been raised by 200 basis points, setting a record for the fastest tightening in the bank’s history.
The action had the support of an “overwhelming majority” of policymakers, while a “minority” of officials wanted a smaller 50 basis point move, the minutes showed. Some policymakers also said that “even after the normalization of the monetary policy stance and interest rates into neutral territory,May need to tightento meet the ECB’s medium-term inflation target of 2%. “
The minutes said that after raising interest rates by 75 basis points in a row,Slowing down is appropriate.However, similar to what the Fed has said, the ECB’sTerminal interest rates will increase significantly. The market believes that the highest point of the deposit rate should be 3%, that is, an additional 150 basis points is needed on the current basis.
Speaking of quantitative tightening (QT), policymakers have put plans to shrink the ECB’s €9 trillion balance sheet on the agenda. Policymakers also agreed to change the terms and conditions of Targeted Long-Term Refinancing Operation (TLTRO) III, a move expected to end up raising borrowing costs for euro zone companies.
Economic growth continues to slow down, inflation is difficult to reassure
In terms of inflation, members emphasized that the latest inflation data continued to exceed expectations, “not reassuring at all.” Last week, the consumer price index (CPI) in the euro zone rose by 10.6% year-on-year in October, higher than September’s 9.9%, more than five times the ECB’s 2% target.
European Central Bank executive member and chief economist Lane said that the inflation rate is still too high and will remain above 2% for a long period of time, but long-term inflation expectations remain consistent with the 2% level.
Executive member Schnabel pointed out that fiscal support has caused medium-term inflation risks, and excessive expansionary fiscal policies must be avoided. So far, many fiscal policies have not been targeted.
In terms of exchange rates, central bank policymakers have known that the euro has been depreciating against the U.S. dollar in the past two years, but the trade-weighted exchange rate of the euro has increased slightly since the September meeting. In terms of commodities, oil, metal and food prices have not changed much compared with September, and natural gas spot prices have fallen sharply.
Eurozone GDP growth in the second quarter was driven by strong growth in private consumption due to the reopening of contact-intensive services. But the latest indicators point to growth largely stalling in the third quarter. Lane added that economic activity would also slow in the next two quarters.