ECB raises the Euroland interest rates by 25 basis points. No pause in sight. The ECB signals more likely to come in future to tame inflation
ECB followed the US Fed on rate increase policy
On Thursday, the ECB did as predicted and increased interest rates by 25 basis points to 3.25%. Indicating that additional tightening would be necessary to control inflation.
Since last July, the central banks of the 20 nations that use the euro have increased rates by a total of 375 basis points. Which is their quickest rate of hardening. However, it becomes clear that given the intensifying wage and price stresses, additional action was likely.
That occurred the day after the U.S. Fed also increased its benchmark rate by 25bp. In this case to an area of 5.00-5.25%, but implied that it might be the final increase in a long history of increases.
Lagerade see more inflationary pressures a head
According to Lagarde, recent pay agreements and strong corporate profit margins provide significant upside risks to inflation. And the current state of the financial system is not adequately strong. She pointed out that the bank’s printed declaration used a plural form of “policy choices” in relation to upcoming choices. Presumably implying beyond one more rise.
A few days after euro zone bank statistics revealed the worst decline in demand for loans in over a decade. The ECB made a decision that represents a pause after three successive 50 basis point rises. That implies that prior rate increases are having an impact on the economy as well as current ECB policies are limiting growth.
The fundamental inflationary factors are still growing, even if total inflation has dropped considerably from double-digit levels If the ECB does not raise interest rates even more, price growth may level out above its goal.
A tight job market makes these dangers worse, especially as wage growth has outpaced expectations and joblessness has reached a record low. Despite the economy being on the verge of recession.
