European Central Bank: “Inflation will remain high for a long time, in view of further rate hikes. Economy slows down”

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The European Central Bank “expects to further raise interest rates in upcoming meetings to curb demand and protect against the risk of a persistent increase in inflation expectations”. This is what we read in the newo Economic bulletin of the ECB, the publication of which follows the 0.75% rate hike decided at the beginning of SeptemberAnd. The indication follows new assessments on inflation that “is likely to remain above target for an extended period of time”. Frankfurt revised its projections upwards cost of living bringing them to 8.1% in 2022at 5.5 in 2023 and at 2.3 in 2024. “The indicators obtained from the markets suggest that, in the short term, oil prices will fall, while wholesale prices in the gas will remain at extraordinarily high levels“, Explains the bulletin where it is also specified that” The inflation of foodstuffs increased significantly, from 9.8 to 10.6% between July and August, driven upwards by the world prices of food raw materials and by the increase in their producer prices in the euro area ”.

At this point the markets are betting on 225 basis points of further monetary tightening by June, with the deposit rate set by the ECB reaching so 3% from the current 0.75%.
The agency writes it Bloomberg based on the data obtained by cross-referencing the swap contracts with the dates of the next meetings of the Governing Council of the central bank. The drastic increase in the tightening expected by the markets – the ECB is officially discussing whether the “terminal” rate where the ECB intends to stop must be 2% or not – follows the Fed’s decision yesterday to raise by another 75 basis points. Expectations of further gas prices also weigh heavily after the escalation of the war in Ukraine announced by Putin.

Monetary tightening takes place in a phase of slowdown in economic growth that the rise in rates is likely to exacerbate. “After the recovery observed in the first half of 2022, recent data indicate a considerable slowdown in growth in the euro area, with the economy expected to stagnate later in the year and in the first quarter of 2023 ″. It is read in the economic bulletin. According to the ECB “there are clear signs of a protracted slowdown of economic activity in a context of high inflation and persistent uncertainty linked to the war in Ukraine and to trends related to energy ”. “The ECB must continue to raise interest rates because inflation continues to be too high, even if the European economy is seen as stagnant,” he said today. Isabel Schnabel, German member of the executive board of the central bank.

“In light of the deteriorating economic and current prospects inflationary pressuresit is likely that the resilience of businesses also depends on the persistence of the support provided by economic policies, in particular by that offered by budgetary authority“. The ECB however encourages a reversal of the trend with respect to “rain” supports of the pandemic. “Budget support measures aimed at cushioning the impact of energy price increases should be temporary and targeted at the most vulnerable households and businesses, so as to limit the risk of fueling inflationary pressures, improve the efficiency of public spending and preserve debt sustainability “.

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Other central banks – This morning the Bank of England (BoE) announced a further UK interest rate hike, seventh in a row, bringing them from 1.75% decided on August 4 to 2.25%: with an increase of half implicitly announced by the governor himself Andrew Bailey in the wake of the US Fed’s hike, but has nevertheless set a record on rates for several years. The decision weighs on the alarm of double-digit inflation in the United Kingdom. There has also moved Swiss central bank which has decided to raise rates by 75 points, slightly less than expected. Swiss rates thus turn positive again for the first time in 8 years. President Thomas Jordan he specified that further increases in the coming months are not excluded. Instead, it continues to move against the tideto central bank of Turkey, despite inflation now over 80%. The central bank has decided on a new reduction in rates, bringing them to 12.5%, pushing the lira to a new all-time low.

There Bank of Japan Instead, it decided to keep interest rates at very low levels, pushing the yen to their lowest levels since 1998. The Japanese currency has lost 20% since the beginning of the year. The Japanese Ministry of Finance confirmed the intervention carried out on the currency market to try to stem the excessive weakening of the currency. This is the first decision in this regard since June 1998.

The article is in Italian

Tags: European Central Bank Inflation remain high long time view rate hikes Economy slows

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