In line with long-promised promises, the ECB said it would end its asset purchase program, its main stimulus tool since the eurozone debt crisis, and said it would raise rates by 25 basis points in July, and that it will do so again in September, possibly with a larger margin.
“The governing council intends to raise the ECB’s key interest rates by 25 basis points at its July monetary policy meeting”said the ECB. “High inflation is a great challenge for all of us. The Governing Council will ensure that inflation returns to its 2% target in the medium term,” said Christine Lagarde.
“The governing council expects to raise the ECB’s official interest rates again in September,” he said. “If the medium-term inflation outlook persists or deteriorates, a larger increase at the September meeting will be appropriate.”
Rates stand at -0.5%, with ECB chief Christine Lagarde confirming it could go back to zero or slightly above zero by the end of the third quarter. However, money markets expect even more aggressive action, betting on 135 basis points of hikes by the end of this year, or a rate hike at every ECB meeting starting in July. Part of the market expects some of the adjustments to exceed 25 basis points. The ECB has not raised rates in 11 years and the deposit rate has been in negative territory since 2014.
inflation forecasts
The ECB has updated this Thursday its quarterly macroeconomic projectionss, which come practically to confirm the most pessimistic scenario forecast by the agency in March, when it published its latest estimates. “The Russia’s unjustified aggression against Ukraine continues to weigh on the economy in Europe and in other countries, it is creating trade disruptions and material shortages, and is contributing to high energy and commodity prices. These factors will continue to affect confidence and weigh on growth, especially in the short term,” they argued.
The Authority directed by Christine Lagarde expects average eurozone inflation in 2022 to be 6.8%, an increase of 1.7 percentage points compared to the March base projection. In the case of the adverse scenario, the ECB forecast three months ago an average inflation of 5.9% in the Nineteen, while the severe scenario, the most pessimistic, considered an annual price rise of 7.1%.
Source: Ambito
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