Quarterly rate hike to 3.5%

Content of the article

FRANKFURT, Germany – The European central bank pushed forward with another interest rate hike on Thursday and promised more are on the way, aiming to crush inflation this increases food costs even afterwards US central bank took a break from his own string of increases.

Advertising 2

Content of the article

The quarterly rate hike to 3.5 percent is the eighth hike in a row since July 2022 for the 20 countries that use the euro currency. That’s an unprecedentedly swift campaign to tighten the flow of credit to the economy as the bank seeks to return inflation to its two percent target from 6.1 percent.

Content of the article

ECB President Christine Lagarde said further hikes, including at the bank’s next meeting on July 27, were on the cards. The ECB’s projections concede that inflation will take months longer to get under control, even after the rate fell from a double-digit peak late last year.

“We are done? Have we completed the journey? No, we are not at the finish line,” she said at a press conference. “Do we still have ground to cover? Yes, we have a lot to cover.”

Content of the article

Advertising 3

Content of the article

Lagarde said the bank “will continue to grow at our next meeting. So we’re not thinking about taking a break, as you can see.”

We are not considering a break, as you can see for yourself

Christine Lagarde

Central banks around the world are struggling to combat price spikes that are pushing households and businesses higher bills for basics like food and rent, but some are beginning to diverge in their decisions to avoid plunging their economies into further trouble.

The U.S. Federal Reserve on Wednesday paused a series of rate hikes as it assesses the impact of higher rates on economic growth and employment. It takes months for rate hikes to seep into the economy, and the pause may be an opportunity to see if the medicine is working.

However, the Fed’s projections suggest that two more rate hikes are possible this year. Central banks in Australia and Canada resumes rate hikes last week after a pause—one symptom of how widely high inflation has become entrenched in the global economy.

Advertising 4

Content of the article

In Europe, higher rates are “gradually impacting the entire economy,” Lagarde said, adding that the outlook for inflation and growth was “highly uncertain” due to risks such as Russia’s war in Ukraine and wage deals that could worsen inflation.

“Economic growth is likely to remain weak in the short term, but will strengthen over the course of the year as inflation declines and supply disruptions continue to ease,” she said.

Higher rates fight inflation by raising the cost of car loans, mortgages, and credit cards, reducing demand for goods that drive up prices. However, they can also weaken the economy and increase the risk of plunging the economy into recession.

The ECB simply cannot afford to be wrong about inflation

Carsten Brzeski

That’s a concern in Europe, where the economy contracted slightly in the final months of 2022 and the first three months of this year. Two equal quarters of decline in output is one definition of a recession.

Advertising 5

Content of the article

But the labor market is very strong, unemployment is the lowest since the introduction of the euro in 1999 – 6.5 percent – and barely corresponds to a real recession.

The Eurozone’s Business Cycle Dating Committee, which uses data on employment and economic growth to determine when a recession has occurred, found no recession in its latest assessment on March 27 and will revisit the issue in November.

Carsten Brzeski, global head of macro for ING Bank, said the ECB was “increasingly at risk of a deterioration in the economic outlook”.

“Despite good arguments against further rate hikes, the ECB simply cannot afford to be wrong about inflation,” he said in a research note. “The Bank wants and needs to be sure it has slain the inflationary dragon before considering a change in policy.”

Advertising 6

Content of the article

Consumer prices began to rise as the global economy rebounded from the COVID-19 pandemic, creating disruptions in the supply chain. Oil and gas prices have also risen due to Russia’s threats against Ukraine and following its invasion in February 2022. This has also caused food and fertilizer prices to soar as supplies from the warring countries, both major agricultural exporters, are cut off.

These pressures are starting to ease, but the initial surge in inflation is being reflected in higher wage demands and service prices, even as energy prices in Europe have been falling in recent months.

“In particular, labor and wages play a significant role as a driver of inflation,” Lagarde said.

Content of the article


Postmedia is committed to maintaining a lively but civil forum for discussion and encouraging all readers to share their views on our articles. Comments can take up to an hour to be moderated before they appear on the site. We ask that your comments be relevant and respectful. We’ve enabled email notifications – you’ll now receive an email when you receive a reply to your comment, an update to a comment thread you’re following, or when a user you’re following comments. Visit our Community Guidelines for more information and details on how to edit yours email settings.

Join the conversation

Source Link