2023-07-27 15:24:00
In a context where inflation continues, the European Central Bank is maintaining the course of raising rates, with an increase of 0.25 points.
By IM with AFP The ECB is raising rates again in an attempt to stem inflation. © Alexandre MARCHI / MAXPPP / PHOTOPQR/L’EST REPUBLICAIN/MAXPP Published on 07/27/2023 at 3:24 p.m.
Subscriber-only audio playback
A year after launching the fastest rate hike cycle in their history, the guardians of the euro are staying the course. The European Central Bank (ECB) announced Thursday, July 27 to raise its benchmark interest rate once again, while leaving uncertainty for the future, while the effect of monetary tightening is felt on the economy .
The 0.25 percentage point rate increase decided on Thursday, as in June, brings the bank liquidity deposit rate to the ECB, which refers, to 3.75%, the highest since the spring of 2001.
After nine successive interest rate hikes, he hinted that he might take a break at the next meeting. “We have an open attitude regarding the decisions that will be taken in September and at subsequent meetings,” which will depend on the available economic data, ECB President Christine Lagarde told a press conference in Frankfurt.
“It will depend on the meetings”
“We are moving into a period where we will be dependent on economic data”, she added, and it is this which will decide “if we raise [les taux] or if we take a break,” Ms. Lagarde explained. “It could be an increase, or a break,” she added, “it will depend on the meetings.” She assured that the Board of Governors in any case would not lower its rates in future meetings.
In the euro zone, inflation is certainly down, at 5.5% over one year in June, but above all thanks to the decline in energy prices, and by remaining well above the 2% target set by the ECB.
The open door to a break comes as previous increases are starting to slow price increases and weigh on economic activity. Ms. Lagarde judged that the economic outlook for the euro zone had “deteriorated”. The policy of high rates is “risky” and could “prolong the phase of economic weakness in Europe and Germany that we are currently experiencing”, the president of the Berlin institute DIW Marcel Fratzscher told a German media group on Thursday.
READ ALSOEuropean Commission and ECB, the choice of rigorThe Governor of the Bank of the Netherlands, Klaas Knot, recently indicated that a further rate hike at the start of the school year is “at best a possibility, but certainly not a certainty”. In September the institute will have new economic projections and will have taken note of the evolution of inflation until August.
In the United States, the Federal Reserve showed the way on Wednesday by deciding on a further increase in its key rate, by a quarter point to 5.5%, the eleventh since March 2022. The rate is at its highest since 2001. In the euro zone, the effects of the cumulative rise in interest rates are already perceptible: demand for credit, particularly from companies, reached its lowest level for 20 years during the second quarter, the ECB indicated on Tuesday .
READ ALSOAre the United States and the euro zone at risk of entering a recession?
“Simplistic recipe”
The euro zone fell into a slight recession last winter, but the latest forecasts from the International Monetary Fund see the region’s GDP (gross domestic product) growing by 0.9% (+0.1 point) in 2023, despite a decline in Germany (-0.3%), the only G7 country that should see the recession last.
The ECB wants to slow down the economy so that companies and businesses give up raising prices, and that their employees moderate wage demands, which tend to fuel inflation. Ahead of today’s monetary policy meeting, the ECB’s restrictive course was criticized in some fragile European economies.
READ ALSOWhat will happen if eurozone inflation is still close to 5% at the start of 2024?
This policy could create “a more difficult situation for growth at the European level”, Portuguese Finance Minister Fernando Medina said in mid-July. The head of the Italian government, Giorgia Meloni, had criticized at the end of June the “simplistic recipe” consisting of raising interest rates to fight against inflation, fearing that “the remedy will prove more damaging than the disease”.
#ECB #raises #benchmark #interest #rate #highest #level