2023-05-04 08:48:33
In the fight once morest persistently high inflation, the currency guardians of the European Central Bank (ECB) are discussing the seventh interest rate hike in a row in Frankfurt today, Thursday. Most economists believe it is likely that euro watchdogs will ease off the gas and raise key rates by just 0.25 percentage points this time.
But a further increase of half a percentage point, as at the previous three interest rate meetings, is not entirely off the table from their point of view. A compromise might be a smaller step up by a quarter of a percentage point coupled with a signal from Fed Chair Christine Lagarde that the ECB is not yet at the end of the road with its tightening stance.
What speaks for lower speed?
In July 2022, following years of ultra-loose monetary policy, the monetary watchdogs implemented the turnaround on interest rates. Since then, they’ve raised key rates by a total of 3.50 percentage points at a rapid pace. The deposit rate, which sets the trend on the financial markets and which financial institutions receive from the central bank for parking excess funds, is now 3.00 percent. With a small rate hike, which is expected on the stock exchanges with a probability of around 80 percent, it would rise to 3.25 percent.
According to economists, the fact that the previous interest rate increases are already slowly taking effect speaks in favor of a slower pace. In the first quarter, the gross domestic product (GDP) in the euro zone grew only minimally by 0.1 percent compared to the previous quarter. In addition, the latest ECB survey of banks on lending shows that corporate demand for loans is already weakening. On the other hand, inflation of 7.0 percent in April in the euro area is still a clear indication that the monetary authorities’ work is far from over. The rate is still more than three times the central bank’s target of 2 percent.
Eagerly awaited speech from Lagarde
It is also eagerly awaited how Central Bank President Lagarde will comment on the further interest rate at the press conference. The money market is currently assuming that the ECB will already reach its interest rate peak in the autumn. Another question concerns the future design of the balance sheet reduction.
According to insiders, more and more currency watchdogs have recently spoken out in favor of reducing the central bank’s bond portfolio, which is worth billions, faster than before. The focus here is on the roughly EUR 3.2 trillion stocks of securities from the asset purchase program (APP).
1683193947
#ECB #discusses #seventh #rate #hike #row