A position completely at odds with that of its global counterparts. The American Federal Reserve (FED), the British and Korean Central Bank have announced that they will gradually raise their rates. The Frankfurt institution has decided otherwise because of the war in Ukraine which might cause a recession because “the euro zone is more exposed and will suffer more from the consequences of the war […] which severely affects the economy of the euro zone and considerably increased uncertainty”, justified Christine Lagarde.
Read also“We do not foresee stagnation”, says Christine Lagarde
For Gilbert This, professor of economics at Neoma business school, the central bank made the right choice: “It is gradually tightening its policy. We would have been angry with it if it had been too abrupt.” By keeping rates low, the ECB is betting not to not further curb the economy and preserve the debt capacity of European states.
Consequences for inflation and growth
While the ECB’s decision is justifiable, it nevertheless leads to undesirable effects. On the foreign exchange market, the euro fell back below the symbolic threshold of 1.08 dollars for the first time since 2020, following the ECB meeting. It traded at 1.0827 (-0.56%) to the dollar, while it was worth $1.12 on March 30. This drop might cause “inflationary consequencesbut reduced, because oil is billed in dollars so it might cost more, for example,” says the economist.
The wait-and-see attitude of the guardian of the European currency also risks threaten future growth. “You have to raise rates to have tools for a future recession [en laissant la possibilité de baisser les taux, ndlr] and if next year there is a recession in Europe, [la BCE ndlr] won’t have any,” investment specialist John Plassard warns Boursorama.
