2023-05-04 12:25:13
The European Central Bank (ECB) once once more raised its interest rates, by 0.25 percentage point, on Thursday May 4, taking into account both the timid decline in inflation, excluding energy prices , and weak economic growth in the euro zone.
Continuing a series of six rate hikes since July 2022, the ECB believes it still has some way to go before ending its monetary tightening cycle. ” It is not the moment “ to stop raising rates, warned its chief economist Philip Lane at the end of April. On Thursday, the 26 members of the ECB’s Governing Council had a whole host of fresh data to decide on the extent of a new hike. A majority of economists were counting, before the announcement, on an increase of 0.25 percentage point, following 0.5 point in March.
The reference rate, by remunerating excess bank deposits dormant at the ECB counter, is therefore increased from 3.0% to 3.25%. By making credit more expensive, the ECB wants to curb demand for mortgage loans, for consumption or for business investments and thus slow down the rise in prices.
The ECB gave no clear indication on the continuation of the rate hike cycle. Future ECB decisions “ensure that policy rates are brought to sufficiently restrictive levels to allow a rapid return of inflation to the medium-term objective of 2%”, according to a statement issued following the monetary policy meeting. To decide, the institution wants to keep “a data-driven approach” economic.
A sharp rise in rates might create new tensions
Inflation in April once more sailed well above the 2% target, regaining 0.1 percentage point, to 7%, following months of slowdown. But excluding the prices of energy, food, tobacco and alcohol, inflation “underlying” fell for the first time in a year, to 5.6% from 5.7% in March, according to Eurostat.
A significant slowdown in inflation is not expected in the short term, given the wage increases granted in several sectors, such as in Germany for public service employees. In the banking sector, lending conditions are getting tougher than ever since the 2011 sovereign debt crisis and demand for credit is feeling the pinch, according to the latest ECB data. Monetary tightening is thus gradually taking effect: “all these impacts will continue to spread through the economy gradually, it’s not over”predicted Mr. Lane.
If the danger of a banking crisis present in March has receded, a sharp rise in rates might create new tensions. Finally, the weak growth of the Gross Domestic Product in the euro zone, of 0.1% in the first quarter, attests to the slowdown desired by the ECB, but also to the vulnerability of the euro zone economy.
On Wednesday, the US Federal Reserve (Fed) had raised, as expected, its key rate by a quarter of a point, which initially delighted the market. But investors did not like statements by Jerome Powell, the Fed Chairman, who said that “no decision on a break was made today” and dismissed the idea of a rate cut this year. On the bond market, the interest rates of the debts of the United States and European States remained stable on Thursday.
1683204400
#European #Central #Bank #raises #interest #rates #points #seventh #increase #July
