The expected scenario for the decisions of the European Central Bank
Global markets await the decisions of the European Central Bank’s Monetary Policy Committee tomorrow is ThursdayExpectations indicate that the European Central Bank will raise interest rates by 25 basis points for the first time since 2011, while there are some expectations that the European Central Bank may change the amount of its monetary tightening to become more aggressive and raise interest rates by 50 basis points.
First: A look at the economic situation and its impact on the decisions of the European Central:
Since the previous European Central meeting in June, many economic data have been released that directed the markets’ expectations for the decisions of the European Central’s meeting tomorrow, Thursday, on top of which was the record inflation data witnessed by the countries of the euro area.
The final inflation data issued by the European Statistical Office Eurostat indicated that average consumer prices among the eurozone countries reached 9.6% during June on an annual basis, the highest rate witnessed by the European bloc since 1997, which prompted the markets to expect the European Central to raise interest rates strongly to control The high inflation.
On the other hand, the European Commission raised its forecast for the average inflation this year in the countries of the region to 7.6% instead of 6.1%, while it lowered its forecast for the growth of the bloc economy to 2.6% instead of 2.3%, as well as the statement of the authorities in Germany – the strongest economy in the region. Anticipating a recession in the German economy.
This indicates the European Central’s expectations of a slowdown in the eurozone economy, and pushes it to act slower and less forcefully to reduce the shock of monetary tightening on economic growth.
On the other hand, the European Union now faces the risk of Russian gas being cut off from it in the event that Russia cuts off gas supplies to Germany via Nord Stream 1, which would put the bloc’s economy in a big predicament that might lead to an economic downturn, according to the predictions of some economists.
Second: The most prominent statements of policy makers at the European Central Bank
ECB member Olli Rehn said last week that he expects the ECB to raise interest rates by 25 basis points, and his comments echoed those of Bank Governor Christine Lagarde.
On the other hand, Martinez Kazaks, the most prominent policy makers at the European Central Bank, as well as Peter Casimir, stated that they are highly inclined to raise rates by 50 basis points and that there are a good number of other policy makers in the European Central Bank who believe that this amount is appropriate in the current circumstances. .
While some sources told Archyde.com yesterday that the Monetary Policy Committee of the European Central Bank will discuss the decision to raise by 50 basis points, and in light of these statements and expectations, the ECB may surprise the markets tomorrow with the interest rate decision.
Third: Expectations of a rate hike
Markets are currently expecting the ECB to raise rates by 155 basis points by the end of the year, and although there are many calls for a 50 basis point rate hike, this is unlikely, as it would contradict most of the previous ECB guidance.
In light of this, the first scenario is for the European Central to raise interest rates by regarding 25 basis points, and this scenario is currently likely, and it may have a negative impact on the euro’s movements once morest other currencies because the attractiveness of holding the euro will remain very weak in light of the strength of European inflation data and therefore Investors are looking for investment havens other than the euro.
While the second scenario is for the European Central to raise interest rates by regarding 50 basis points, and this scenario is currently excluded in light of the fears of recession in European economies, but it is one of the options available to the European Central, and if it occurs, it may give strong support to the euro because it will confirm the bank’s priority in controlling inflation. It may give a strong indication of further rate hikes coming to curb the very high European inflation rates.