The European Central Bank (ECB) announced the latest policy decision on Thursday (9th), as expected by the market, it announced that it will stop net asset purchases from July and keep the three major interest rates unchanged, but plans to raise interest rates by 1 yard (25 basis points) next month. ), while suggesting that if the future inflation situation has not improved or even worsened, interest rates may be raised sharply in September.
CurrentlyEURThe main refinancing interest rate, deposit mechanism interest rate and marginal lending interest rate in the district remain unchanged at 0.00%, 0.25% and -0.50% respectively, but the ECB has decided to stop the purchase of net assets under the Asset Purchase Program (APP) from July. A rate hike in July paved the way.
The ECB statement said that it plans to raise interest rates by 1 yard in July and expects further action in September. It also said that it expects to raise interest rates “gradually and continuously” after September. If the inflation outlook continues or even deteriorates, September may There will be more rate hikes.
In addition, the ECB has also significantly raised its inflation forecast. It currently forecasts an inflation rate of 6.8% in 2022, 3.5% in 2023 and 2.1% in 2024, and also significantly lowered its economic growth forecast. Gross gross domestic product (GDP) was sharply revised down to 2.8% and 2.1%, respectively, although the 2024 GDP forecast was slightly raised to 2.1%. That compares with the ECB’s forecast at its March meeting of 3.7 percent in 2022, 2.8 percent in 2023 and 1.6 percent in 2024.
The ECB also said it would stand ready to adjust all policy tools to ensure inflation remains at its 2% target in the medium to long term.
Notably, investors are pricing in a 50/50 chance of a 2-yard (50bps) rate hike by the ECB in July this week, with the ECB’s new outlook revealing high medium-term inflation as price pressures persist and the economy loses momentum at or on par with the target.
Analysts and Expert Views
The pace of ECB rate hikes has lagged behind global central banks. TD Securities analyst James Rossiter said in a report that this is usually interpreted as ECB finally realizing that it needs to adopt a “catch-up” approach to raising interest rates. Once interest rates reach a positive range, the pace of interest rate hikes may slow down.
Randall Kroszner, a professor of economics at the University of Chicago and a former Fed governor, said before the ECB meeting that it is important for the ECB to start adjusting interest rates because high inflation may even become entrenched unless ECB policymakers take aggressive and clear action , to raise interest rates.
Anna Stupnytska, global macroeconomist at Fidelity International, said the unexpected rise in inflation in Europe and continued evidence, coupled with the Fed’s aggressive tightening of monetary policy, put pressure on the ECB ahead of monetary policy normalization. While the risk of deviating from longer-term inflation expectations does not appear to be high, the rapidly widening policy divergence from the Fed does pose challenges for the ECB,EURThe repricing against the US dollar was in the spotlight.