2023-05-04 18:31:21
Efforts by the European Central Bank (ECB) to contain inflation, runaway as a result of the war in Ukraine, continue. The Governing Council of the community institution has raised interest rates again this Thursday, but at a more moderate rate of 25 basis points, raising the price of money to 3.75%, levels not known since October 2008. This is the most moderate rise in rates since the ECB began the cycle of increases in the price of money with which it has been fighting inflation since July last year, since the increases had been taking place by half a point at a time. But moderation does not mean that rates will stop rising as the Eurobank expects more increases in the short term.
Its president, the French Christine Lagarde, has acknowledged that the data collected with her recent loan survey was “key” in making this decision. The document shows a “stronger than expected” tightening in loans to businesses and households.
The ECB continues to be “very focused” on containing inflation at 2% in the medium term (its founding objective) and Lagarde insists that the moderation of the increases this month should not be seen as a sign that they are “pausing” this path. . «In the governing council, everyone was clear that raising the rates was necessary. This decision does not mean that we are pausing the increases and we know that there is still ground to cover, “he emphatically stressed. The decision, finally, has been made “almost unanimously.”
The main differences of opinion have had to do with whether or not to moderate rate hikes. The ‘hawks’ – Germany, Austria, the Netherlands… – maintain a majority on the ECB council and defend more pronounced increases, but have given in exchange for the body making it clear that it will continue with this roadmap beyond May.
Prices are still out of control in the Eurozone, with a rate of 7% in April, fueled by energy costs. And the signs of moderation in core inflation – which excludes fresh food and energy prices – are not enough for the ECB, which insists that it will do “everything necessary” to contain prices. As? They continue to consider that rate hikes are “the best tool” to achieve this. In fact, since last July, it has raised the price of money seven times, up to 3.75%.
However, the recent financial turbulence, with the intervention of the Silicon Valley Bank (SVB) and the rescue of the Swiss entity Credit Suisse, have caused ‘shocks’ in the European banking system that have led the ECB to soften the rate hikes. Despite everything, the vice president of the organization, Luis de Guindos, has pointed out the “solidity” and “resilience” of the European entities although they continue to closely monitor the sector.
turbulence
In parallel, the ECB continues to wind down its asset purchase program at a “gradual and predictable” pace. The agency is expected to stop reinvesting an average of 15,000 million euros per month until the end of June 2023 and the Eurobank expects to stop all reinvestments the following month, in July.
The decision taken this Thursday has special weight in countries like Spain, with inflation lower than the average for the Eurozone (3.8% in April). And it is that, while the Baltic regions register a high price rate, with Lithuania in the lead (15%), in those where prices have managed to be reduced substantially, the ECB measures can put economic growth at risk.
Before knowing the decision of the organization, the first vice president and Spanish Minister of Economic Affairs, Nadia Calviño, stressed that she expected the ECB “to be successful in articulating a monetary policy that contains inflation without jeopardizing economic growth and the employment creation”.
The truth is that economic activity cooled in the first three months of 2023, with an increase of just 0.1% in the Eurozone, according to the most recent data published by Eurostat. In that period of time, Spain remained one of the euro economies that grew the most, 0.5%.
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Before knowing the decision of the organization, the first vice president and Spanish Minister of Economic Affairs, Nadia Calviño, stressed that she hopes that “it will succeed in articulating a monetary policy that contains inflation without jeopardizing economic growth and the creation of employment”.
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