The European Central Bank prepares to adjust interest rates again

as in last mayit is expected that the increase be 25 percentage pointswhich would place the deposit facility, refinancing and marginal lending rates at a 3.50%, 4% and 4.25%respectively.

It is anticipated that, like the us federal reserve (Fed), the ECB is in the final stage of increases of interest rates, with another rise, which would be the last, scheduled for the next meeting in July or September.

Unlike its American counterpart, which began your monetary adjustment in March last year, the ECB implemented its tightening policy in July, which generated a certain gap between both institutions.

The entity is facing a situation in which the Eurozone economy, although it exceeded initial expectations and showed greater resilience than expected, registered a technical recession in the first quarter of this yearwith a contraction of 0.1%.

The stagnation is more evident in sectors such as the industry, while others such as services manage to resist the contraction in demand. In addition, other indicators, such as credits also reflect a stagnant economythe only exception being the employment figures, which continue at record low levels.

However, the decision will not be easy for the ECB, since Inflation continues to widely exceed the goals established by the monetary entityreaching a 6.1% annual last May.

Although the headline rate of inflation is decliningthe core index, which excludes food and energy valuesbecame a matter of concern for central bank officials, since only decreased three tenths in the last indicator.

European markets in red awaiting the decision

He IBEX falls 0.3%, the ACC 40 French does it at 0.8% and the DAX of Germany writes down 0.7%.

According to many experts, it is expected that at the June meeting there is an increase in interest ratesand some even suggest that the organism could continue increasing them in future meetings.

“It will be interesting to see what the position will be from now on, since, according to the statements of the members of the government council, there are very divided opinions on the possibility of applying another additional increase after the summer. either waythe market is already partly anticipating this possibility (three increases from current levels), so you would have moderate impact on bond valuation“, explainedto Garcia Mellado from A&G.

“What is practically certain ands that the Monetary Authority will continue to adopt a ‘meeting by meeting’ approach to keep all options open depending on the data that is published”, adds the expert.

“Lagarde will maintain a hard tone, leaving the door open to new increases on interest rates, but without specifying the road map for the next meetings. If this is true, the uncertainty will persist and the market will not receive the message well. As a consequence, an impact is expected slightly negative in both stock and bond markets (with an increase in returns). However, the market is used to disappointments from the ECB, which will soften your reaction“, coincide in Bankinter.

“It is also likely that at the July meeting the European Central Bank increase deposit interest rates by 25 basis points, possibly for the last time if the disinflationary trend is confirmed. In this sense, so far christine lagarde has managed to complete its cycle of monetary tightening without cracks in the system, despite the fact that a year ago it was said that the region was less prepared to face a tightening cycle,” concludes Thozet de Carmignac.