ECB: ninth increase in interest rates. Lagarde wants the “Rates to be sufficiently restrictive”
On Thursday, the European Central Bank raised interest rates by 25 basis points, the ninth consecutive hike, saying it expected inflation to remain too high for too long despite the recent slowdown. c
This brought the rate on main refinancing operations to 4.25%, the highest since October 2008, and the rate on deposits with the central bank to 3.75%, the highest for over 22 years.
The ECB also pledged to follow a "data-driven approach" to future rate decisions and said that rates would be set at levels tightening enough for as long as it takes to bring inflation back to its 2% target. What if this doesn't happen? If the inflationary dynamic, as has happened up to now, is due to energy costs or wrong policies, the high interest rates will cause an extremely damaging tightening for the economy.
To be more precise, the ECB communicated that:
- Future decisions of the Governing Council will ensure that the key ECB interest rates are set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the medium-term objective of 2%.
- The Governing Council will continue to follow a data-driven approach to determining the appropriate level and duration of the restriction.
- In particular, its interest rate decisions will continue to be based on its assessment of the inflation outlook in light of incoming economic and financial data, underlying inflation dynamics and the strength of the monetary policy transmission.
Given that the only factors analyzed are inflationary, the increase could continue until the European real economy is heavily affected.
Since the central bank's tightening cycle began in July 2022, ECB officials have implemented an unprecedented 425 basis point rate hike, marking the fastest pace of tightening in its history.
The signs on the real estate markets are already being felt. The consequences will be very heavy.
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The article ECB: ninth interest rate hike. Lagarde wants “Rates to be restrictive enough” comes from Scenari Economici .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/bce-nono-innalzamento-dei-tassi-di-interesse-la-lagarde-vuole-che-i-tassi-siano-sufficientemente-restrittivi/ on Thu, 27 Jul 2023 13:45:38 +0000.