The ECB prepares for the first rate hike in July-2022 May 11, 15:40

ECB Headquarters in Frankfurt, March 12, 2020 (AFP / Daniel Rowland)

ECB Headquarters in Frankfurt, March 12, 2020 (AFP / Daniel Rowland)

On Wednesday, the President of the European Central Bank (ECB) prepared for a rate hike in July to deal with rising inflation, which marks the beginning of the end of “easy money” in the euro area. America.

European financial institutions make their first net purchase of assets “at the beginning of the third quarter,” that is, “first close” in July, and then “after a while” in “a period of just a few weeks.” is needed. “I warned Mr. Lagarde in a speech in Ljubljana.

Inflation reached a record 7.5% in April in the euro area, but the ECB seems determined to return this total to its target of 2% over the next two years.

His choice is Cornelian. Failure to raise interest rates risks a bit more stimulating inflation, especially through higher wages following high inflation. Raising them too fast can further slow down already weak growth.

Again in April, the ECB said it wanted to wait. But price shocks, especially energy prices fueled by Russia’s war against Ukraine and multiple shortages, prevent it from remaining lazy.

-Step-by-step journey-

We also promise that the next meeting of the European Central Bank, which will be held in Amsterdam on June 9th and then in Frankfurt on July 21st, will be decisive before the summer vacation.

“After the first rate hike, the normalization process will be phased in,” Lagarde said. She talks about a gradual “journey” from April and predicts a series of rate hikes after the beginning of summer.

This shift is primarily driven by the “hawk” advocating stricter monetary policy within the ECB’s decision-making body, the Board of Directors.

The latter seems to have taken over the “dove”, a follower of long-term support for the economy.

“Inflation in the euro area remains high, but action must be taken,” said Deutsche Bundesbank Governor Joachim Negel.

According to this “hawk”, a financial shift is now possible, but it becomes even more difficult if you have to wait for the end of the war in Ukraine.

In a speech in Vienna on Wednesday, ECB executive committee member Isabel Schnabel added, “It’s time to put an end to the measures that have been activated to combat low inflation.”

This is because the era of net redemption of public and private debt is dormant in the ECB rather than being distributed by credit-by taxing today with 0.5% bank deposits, in the era of negative tax rates. It means that you have to end it like this.

Policy was regularly criticized in the first European economy, where many Germans accused the ECB of helping prices rise and making savers poor.

“Money won’t be a little easier,” “interest rates will rise very slowly,” Bank of France Governor Francois Billroy de Garhow said in a few months on the Bank of France’s radio.

-First increase since 2011-

The ECB hasn’t experienced rate hikes since 2011, but it’s clear that it’s now preparing to follow in the footsteps of other major central banks ahead of the issue.

At the beginning of May, the Federal Reserve Board (FRB) raised key interest rates by 0.5 points to combat even higher inflation than in the euro area. And the Bank of England (BoE) has raised that rate to its highest level since 2009.

For the euro area, Axa’s chief economist Gilles Moec, who was interviewed by AFP, said: “The first rate hike took place in July and then to zero (negative rate) in September before a long break. I’m expecting to return. ”

But he does not expect a long series of increases.

“During the side effects of the ongoing war in Ukraine, the complex Covid situation in China, and the rapid tightening of fiscal conditions in the United States, the ECB cannot easily continue its normalization beyond 2022. “He concludes.