The institution was preparing to raise its interest rate to curb inflation, but the war in Ukraine changed the situation. Under penalty of stifling a fragile economic rebound following two years of pandemic, it is forced to maintain its support for the economy. Following its monetary policy meeting on March 10, the bank decided to leave its key rates unchanged.
The European Central Bank (ECB) has moved from a delicate situation to an impossible situation. Officially, his mandate orders him to keep inflation around 2%. With a price increase of 5.8% in the euro zone as a whole in February (and even around 14% in Lithuania, 12% in Estonia, 10% in Belgium, etc.), the ECB is not at fault. all.
Before the invasion of Ukraine, the Frankfurt institution had therefore warned: it was going to announce, during its meeting on Thursday, March 10, a gradual withdrawal of its economic support, which amounts to an injection of around 60 billion euros. euros per month in the markets. This rate was going to reduce rapidly, perhaps to zero by the summer. Then, probably before the end of the year, an increase in its interest rate (currently -0.5%) was possible. Well, following its monetary policy meeting, the bank decided to take a hard line on inflation. She generally chose the status quo.
Unsurprisingly, the Frankfurt Institute left its key rates unchanged. The interest rate of the main refinancing operations as well as those of the marginal lending facility and the deposit facility remain at, respectively, 0.00%, 0.25% and -0.50%.
The European Central Bank’s hope is that the inflation shock will eventually subside on its own by the end of the year, when energy prices stabilize. But it has been counting on such a scenario for almost a year, each time postponing the date on which prices will begin to calm down. And the war in Ukraine may make us fear the worst: JP Morgan economists speak of a barrel of oil around… 185 dollars (170 euros) by the end of the year, which would be a historic record ( it was close to $120 on Friday, March 4).
In any case, faced with the absolute vagueness of the situation, George Buckley, of the Nomura bank, believes that it was the wisest decision to take: “The ECB’s plans will probably, for the moment, be frozen”. The other central banks are also caught in a pincer movement.
In the United States, the Fed, which has long announced a rate hike at its March meeting, should comply. But Jerome Powell, its president, spoke on Wednesday March 2 of an increase of a quarter point (the rate is currently just above zero) instead of half a point, as previously envisaged.
Aziz Diouf / ECO Inspirations
