Oil stress and China push away the end of interest rate hikes

2023-09-18 19:12:44

Oil supply stress due to cuts by Russia and Saudi Arabia keeps the price of a barrel of Brent in a range close to $93-94. Many oil experts and financial entities have changed their forecasts and now point to an end to the year with the level of 100 dollars per barrel that could be exceeded.

This will put pressure on prices in all economies dependent on oil imports and removes the possibility that the expected reduction in interest rates will arrive in 2024. It could even stop the end of the upward cycle in the price of money in its tracks in the event that energy tensions end up having a strong impact on inflation.

Added to this is investor concern about the situation in China, where credit growth to the private sector is lower than expected and the economy has not recovered after pandemic restrictions were lifted and monetary policy was relaxed. .

In this sense, the Bank for International Settlements (BIS) warns that those who believe that the upward spiral in rates is going to stop could be wrong if inflation becomes entrenched. The BIS published its September quarterly report yesterday, in which it analyzes movements in financial markets from June to September 8.

Last Thursday, the European Central Bank (ECB) raised its interest rates for the tenth consecutive time since July of last year, up to 4.5%, the highest since 2001, and although its president, Christine Lagarde, did not say whether this percentage is the maximum they will reach in this bullish cycle, many analysts believe that the time has come to stop given the risk that the rise in the price of money will end up affecting consumption and growth in the EU in general and Germany in particular.

The vice president of the ECB himself, Luis de Guindos, has explained that the institution believes that the current range is sufficient to return inflation in Europe to around 2%. However, he has also warned that the ECB is attentive to the evolution of events.

The US Federal Reserve (Fed) increased its interest rates in July to a range between 5.25% and 5.5%, meeting this week to decide what to do.

The Bank for International Settlements, based in the Swiss city of Basel, recalls that the ECB and the Fed have warned that although interest rates will most likely not rise much further, they will remain high as long as inflation does.