As expected, the European Central Bank (ECB) raised the top three interest rates at 50 basis points. Furthermore, the ECB announced in March that it would raise interest rates again. interest another 50 basis points.
Consequently, the interest rate on deposits at the funding rate (where the liquidity of bank deposits) HE remained at 2.5%, the refinancing rate increased to 3% and the Emergency window rate increased to 3.25%.
These are the three nominal types and officials of the Eurozone that will determine the evolution of market rates, such as the Euribor or the interest on government securities or bonds.
It is the first time in more than a decade that the ECB announces further rate hike that of the Federal Reserve, which implemented an increase of 25 basis points on Wednesday.
For a fair comparison, one must take into account Note that the Fed started raising interest rates a few months before the ECB, who waited until last summer (early 2022).
In addition, the Fed kept interest rates interest in 4.5% while the Eurozone made in 2.5% (deposit rate), you can consult the evolution of the ECB rate here.
On the other hand, the ECB emphasized core inflation, which remains in historically high levels.
“Given the pressures on core inflation, the Governing Council plans to raise interest rates by a further 50 basis points at its next monetary policy meeting in March and will assess its future monetary policy path,” said the press release published by the central bank This is new, since knowing the great magnitude of March was one of the questions that remained unanswered.
François Rimeu, senior strategist at La Française AM, comments in a note that “the board of directors has confirmed that interest rates have not yet reached a very restrictive level and remain high enough to bring inflation to its target of 2% for the moment.”
“We expect ECB President Christine Lagarde to repeat her meeting-by-meeting approach to tightening monetary policy. We believe this will indicate that the pace of monetary policy tightening could be reassessed at the March meeting, in line with economic projections.”
The biggest interest rate rise in the euro era
The members of the ECB have been tough and determined since their last meeting, the ECB's tightening stance appears to have surpassed that of the Fed for the first time in a long time.
Two of the central bank hawks, Holzmann (Austria) and Knot (Holland), representatives of the hard wing of the delegation said these days that they hope at least two increases of 50 basis points in the coming months, while Nagel (president of the Bundesbank) said that he ECB has already committed tor big increases in the next two agglomerations.
All this does think that an increase of 50 points “will go down” in March. But it is uncertain.
There was also moderate, although not particularly strong, aerodynamic drag. Italo Panetta, who is perhaps the most moderate member of the board, warned against talks after February, although another moderate member, Makhlouf, said he would not be surprised if the bank continues to raise interest rates beyond the first quarter.
In recent statements in Davos, the president of the ECB, Lagarde, repeated a message from a press conference in December confirming that banks “they will stay the course”Correcting higher expectations, he also said he would recommend markets “reconsider your position” that an imminent drop in profits is expected.
The most difficult round
He European Central Bank (ECB) is carrying out the largest interest rate increase in history. The analysts of Bank of America They say I would return the 1980s to see a important monetary correction.
Central bank resume what the banks did nationals in the 1980s, when the old continent faced the penultimate oil crisis.
The real question is when Lagarde will curb rates.
Yesterday the Fed already left the person in a somewhat uncomfortable position European Central Bank when cutting the growth rate by 25 basis points.
The market no longer considers in the US that interest rates will be capped in May and the first rate cuts will occur in November.
For the ECB Financial Exchange, before the statement, calculated that the highest peak was close to 3.5% in July. That is, the situation requires an increase in 1.5 percentage points in four agglomerations.
ECB Rate Forecast
Until the next meeting in March, it was considered a baseline increase of 25 points.
But ECB He already specified that in March the recovery will be another 50 basis points.
In fact the model has changed and the maximum rate is more about 3.25% that of 3.5%. It also includes cuts from the beginning of October.
The inflation in the Old Continent fell to 8.5% in January for the third consecutive month.
He CPI remains high, and although it is expected to continue falling in the coming months, it will not happen fast enough for the central bank, which points to 2%.
As the euro economy continues to slow But there are also signs for Frankfurt that the breakup may come sooner rather than later.
The history of inflation in the old continent is far from over. “Consequently, we do not expect ECB policymakers to reconsider their monetary policy guidance before May,” said Mabrouk Shetuan, chief strategist at Natixis IM Solutions.
Unemployment in the eurozone increased in December and January, a bad seasonal month, won't be much better.
In fact, data from Indeed suggests that Salaries are starting to plummet.
“We expect another 50bp increase in March before moving to more traditional 25bp increases in May,” said Konstantin Veit, portfolio manager at PIMCO.