The European Central Bank (ECB) remains hawkish and decided to raise rates again by 50 basis points, despite the doubts of the markets in the midst of inflation that remains high.
He European Central Bank (ECB) remains hawkish and decided to raise rates again by 50 basis points from 3% to 3.5% despite the doubts of the markets amid inflation that remains high and the turmoil in financial markets after the bankruptcy of the American Silicon Valley Bank (SVB).
At the same time, the world’s second largest central bank announced that it expects inflation to be 4.6% in 2023 and 2.5% in 2024.
“Inflation excluding energy and food continued to rise in February and ECB experts expect it to average 4.6% in 2023, above the estimate in the December projections. Subsequently, it would drop to 2 .5% in 2024 and 2.2% in 2025, in a context of gradual disappearance of upward pressures due to previous supply shocks and the reopening of the economy and in which the tightening of monetary policy increasingly slows down demand again,” he said.
Regarding inflation, the ECB justified the rate hike with the fact that “the new macroeconomic projections of the ECB experts were finalized at the beginning of March, before the recent appearance of tensions in the financial markets. Consequently, these tensions add uncertainty around the baseline scenario assessments for inflation and growth.
Prior to these recent events, the baseline path for headline inflation had already been revised downwards, mainly due to a smaller than previously expected contribution from energy prices. ECB staff now expect inflation to average 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. At the same time, underlying inflationary pressures remain powerful”.
At the same time, he noted that the “euro area banking sector has resilience and strong capital and liquidity positions. In any case, The ECB has all the necessary monetary policy instruments to provide liquidity support to the euro area financial system if necessary and to preserve the smooth transmission of monetary policy.”
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