To combat the rise in prices, the European Central Bank announced Thursday the increase in its guiding rates in July then in September and the end of monetary support measures.
Le Monde with AFP
The European Central Bank (ECB) decided on Thursday, June 9, to stop its monetary support measures by ending years of asset buyouts and announced that it will be its guiding rates in July to fight against inflation , a first for over ten years. Announced at the end of a meeting of the Governors’ Council, relocated to Amsterdam, these largely awaited decisions mark a historic turning point after years of cheap and abundant silver policy.
While the other major central banks have already started the tightening of their monetary policy, the Euro guards “intend to raise the key rates of 25 base points at the meeting in July”, before “Another increase in September”, according to the institution’s press release . It will be the first rate increase since May 2011.
Dynamics of inflation accelerated by the war in Ukraine
Since December, the ECB has been surprised by the dynamics of inflation, which has accelerated again with the war in Ukraine. It reached 8.1 % over a year in May, with fourteen countries out of nineteen in the euro zone located above this average. Unheard of since the establishment of the single currency and a level four times higher than the objective of the ECB set at 2 %.
The expected price reflux is long overdue: the ECB clearly noted its inflation forecasts until 2024. The institution now expects inflation of 6.8 % in 2022, which should then slow down at 3.5 % in 2023, but remaining with 2.1 % above the target of 2 % even in 2024. However “if the inflation prospects in the medium term persist or deteriorate”, a greater increase rates, greater than 25 points, “will be appropriate at the September meeting,” warns the ECB.
For several weeks already, the “falcons” of the institution, supporters of greater monetary rigor, plead for increases of 50 base points.
Other central banks confronted with high inflation, such as the American Fed and the Bank of England, have already engaged in a rate of raising of the rates.
H2>
The ECB has locked itself in a very progressive monetary tightening calendar and now derogates from it would undermine its credibility. Thus, the institution confirmed Thursday that it was going to end “July 1” to its net buyers of assets, a prerequisite before starting to raise its rates.
spearhead, with negative guiding rates, of its action against deflation, these programs allowed the ECB to buy bonds on the market in turn to lower funding costs and start the ‘economy. The colossal amount of some 5,000 billion euros in bonds has been bought by the ECB since 2015. Faced with rampant inflation, this support is no longer necessary.
The release of the negative rate policy started in 2014, which aroused flowers of criticism in Germany in particular, is delicate. This policy means that banks are taxed – from -0.5 % to date – on their deposits entrusted to central banks for lack of distributing them via credits.
The ECB must take care not to break European growth already seriously shaken by the consequences of the war in Ukraine. The institution thus lowered its annual growth forecasts on Thursday: the increase in GDP should be limited to 2.8 % in 2022 in the euro zone, before 2.1 % in 2023, against 3.7 % respectively and 2.8 % during the last forecasts in March.
The ECB must also be attentive to a rate recovery does not lead to a fragmentation on the sovereign debt market in the euro zone, in other words that European states do not borrow at levels too much different.