The European Central Bank (ECB) would start raise your benchmark interest ratescurrently located at lows, at starting next julyas anticipated this Wednesday by its president, Christine Lagarde.
After a record inflation of 7.5% annual rate in April and seven consecutive months above 4% (double the traditional goal of 2%), now the ECB aims to accelerate the rise in interest rates with the aim of stopping the escalation of prices.
energy and foodwhose prices have accelerated since the outbreak of the war between Russia and Ukraine explained more than half of the latest inflation indexsince core inflation (which excludes both components) only added 3.5% in April.
According to Lagarde, the ECB will end its net asset purchases “at the beginning of the third quarter” and, “some time later there will be a first rate hike”, which would represent the first time that the body has done since 2011.
The ECB currently maintains rates at 0% for main refinancing operations, 0.25% for the marginal lending facility and -0.50% for the deposit facility.
Said time lapse between the end of the conventional stimulus program (APP) and the rate hike “could mean a period of only a few weeks,” said the president of the entity at a conference in Slovenia, according to the AFP and Bloomberg agencies.
The ECB currently keeps rates at 0% for the main financing operations, 0.25% for the marginal credit facility and -0.50% for the deposit facility.
The entity is one of the fewamong the main central banks, in not having modified until now the interest rates.
While, The Bank of England raised its rate to the highest level in 13 years last week, and the US Federal Reserve, after raising interest rates in a range of 25 percentage points for the first time in March; in May it accelerated the process and raised it by 50 points (placing it in a range of 0.75 to 1%), without ruling out a future rise of the same tenor for the next monetary meeting in June.
In the case of the ECB, the entity has scheduled its next monetary policy meeting on June 9 in Amsterdam, followed by another on July 21 in Frankfurt, in which the rate hike could be decided.
“After the first rate hike, the normalization process will be gradual”Lagarde added, suggesting that there will be more rate hikes after the European summer.
The positions within the members of the European bank are divergentwith some of them expressing a more cautious position, since a sharp rise in rates could slow down even more the growth of the continent -already diminished by the effects of the war, and others (the so-called “hawks”), such as the president of the German Bundesbank, Joachim Nagel, advocating faster action by the bank.
The conventional stimulus program (APP) was reduced to 30,000 million euros this month, and then another decrease to 20,000 million is stipulated in June
In that sense, the executive member of the governing board of the ECB, Frank Elderson, agreed with Lagarde, and suggested that the ECB could start raising rates in July.
Other members of the “board”, such as Fabio Panetta, meanwhile, prefer to wait for the macroeconomic figures for the second quarter, since the European economy is “stuck in the facts”.
The markets assume that the ECB will successively raise a quarter of a point its interest rate in July and September, with another increase for the end of this year.
Regarding the monetary expansion programs -through which the ECB acquires different classes of assets such as public debt or corporate bonds to drive growth-, the special program established in the pandemic (called PEPP, for its acronym in English) ended in March.
Meanwhile, the conventional stimulus program (APP) was reduced to 30,000 million euros this month, and then another reduction to 20,000 million is stipulated in June.
The ECB will assess whether or not to continue with that program in the third quarter, which, in the negative case, would imply the second time that it will be put on hold since its inception in October 2014, at which time Europe was experiencing negative inflation rates. .
