3 C
Saturday, January 28, 2023
HomeEconomyThe ECB announces the end of debt purchases and a rise in...

The ECB announces the end of debt purchases and a rise in interest rates of 0.25% in July | Economy | The USA Print


Related stories

End point of an era of monetary policy in the euro zone. The European Central Bank (ECB) closes this Thursday a stage that Mario Draghi opened at the beginning of 2014 in Amsterdam, when he showed the markets his artillery to deal with the economic hardship that the euro zone was experiencing: an extraordinary debt purchase program which would be accompanied by interest rates in negative terrain. Nine years later, the president of the Eurobank, Christine Lagarde, announced in the same city the end of that almost decade of debt purchases and negative rates in the face of galloping inflation, which for this year the ECB forecasts will average 6.8 % this year; 3.5% in 2023, and 2.1% in 2024. According to the note released by the institution, the purchase of debt will end on July 1 and, in that same month, the first rate hike will take place in 11 years, 0.25%. But it won’t be the only one. The statement adopted by the Governing Council indicates that in September there will be another, whose magnitude is not specified because it will depend on the inflation prospects that the institution has at that time in its hands.

Mervyn King, former Governor of the Bank of England, once proclaimed the dream of every central banker: “My ambition is to be as boring as possible.” Christine Lagarde, president of the European Central Bank (ECB), had this Thursday the mission of not being. In his hands he has had three balls for weeks that he cannot let fall. One: the markets must be convinced that the institution he presides over will do everything in its power to stop inflation. Two: his decisions cannot suffocate growth already depleted by the war in Ukraine. And three: he must tie risk premiums short to avoid a catastrophe like the Great Recession. However, the ECB has already decided to put inflation at the top of its priorities. “High inflation is a great challenge for all of us. The Governing Council will ensure that inflation returns to its medium-term target of 2%,” the statement begins.

Lagarde appears this Thursday after the meeting of the Governing Council of the ECB, which will be key to the monetary policy of the euro zone in the coming quarters. With new economic forecasts in hand, markets expect Lagarde to raise the tone. He spreads the perception that the Eurobank is late. Especially when some thirty financial institutions have carried out, together, more than 300 increases since last year. And the hawks They have been flying over Frankfurt since the April conclave so that the French press the lever as soon as possible to raise interest rates. “It’s frustrating that the ECB continues to drag its feet,” says Charles Wyplosz, a professor at the Graduate Institute in Geneva.

Given the impatience of some members, Lagarde already did part of the work this Thursday through her blog. In an unusual move, she outlined the path she was going to follow in the summer: an end to the purchase of debt and a rate hike of at least half a point until the end of September. The inflation figure for May, 8.1% – the highest since the creation of the euro – gave the last push for a roadmap for which a consensus has been created within the council. For now, that agreement points to a rise of 0.25% in July and an identical one in September. That would take the euro zone out of the stage of negative rates —the financial facility rate is at -0.5%— in which it has lived for eight years.

The governor of the Bank of Spain, Pablo Hernández de Cos, has publicly assented to this roadmap, asking that the process of raising rates be “gradual”, avoiding “abrupt movements”. But several members of the governing council begin to go further. The Austrian governor, Robert Holzmann, had even asked for a rise as early as this Thursday. and up to five hawks they had upped the ante by claiming more heavy-handedness and a half-point increase in July. Among them the one from the Netherlands, Klaas Knot, the host of the council.

The ‘Trichet syndrome’

He knows in depth all the sides of the coin.


“Central banks are late to inflation, as the Federal Reserve has admitted. Even its former president, Janet Yellen, said she was wrong. But to be honest, I don’t think central banks are to blame. No one could have predicted a new lockdown in China and very few predicted the structural changes in inflation”, she states via video conference.

With this more aggressive tone, some bankers consulted in recent weeks maintain that Lagarde is looking for a volcker effect, referring to the chairman of the Federal Reserve who managed to end the runaway inflation of the 1970s. Above all, he gave her credibility. “The Fed lived on revenues for a long time,” says a former banker consulted. However, Lagarde cannot afford the price Paul Volcker paid: ending runaway inflation at the cost of a recession. And although the ECB economists raise the inflation outlook compared to March, they lower the growth outlook to 2.8% in 2022 (2.3 points less), 2.1% in 2023 (the same as then) and 2.1% in 2024 (two tenths more).

Not surprisingly, the ECB still lives under the Trichet syndrome, the former president of the Eurobank who raised rates at the wrong time in 2008 and 2011. There are those who still tremble just imagining the consequences. There is consensus to raise rates, step by step. Not for big jumps. “There will be a debate”, they predict from Frankfurt.

Also Read:

The labor crisis in the airline sector leads to a chaotic summer at airports | companies | The USA...
The current stock market crisis has already destroyed more value of the S&P 500 than the one of 2008...
The community of neighbors will be able to leave the defaulters without a pool and demand more inter...
Biden plans to suspend the federal gas tax to combat inflation | Economy | The USA Print
How is the tax on electricity companies in other European countries | companies | The USA Print
Spain: The Government only spent 2,400 million of European funds last year | Economy | The USA Pri...
Norway rubs its hands with the energy crisis: "There are times when it's not fun to make money, and ...
A week of gas cap: neither fiasco nor panacea | Economy | The USA Print
The richest 1% concentrates 17% of the national income | Economy | The USA Print
The unions demand that the CEOE return to the salary negotiation table: "If there is no agreement, t...
Kellogg splits into three companies to accelerate growth | Economy | The USA Print
The funds give Abengoa until Friday to save itself from bankruptcy | Economy | The USA Print
The CNMV will redouble surveillance on cryptocurrency advertising at sporting events | Economy | T...
Israel Arroyo leaves the post of Secretary of State for Social Security and Pensions | Economy | T...
Elon Musk says there are three issues to be resolved to close the purchase of Twitter | Economy | ...
Airef criticizes the Government for the lack of information on the execution of European funds | Ec...
El Corte Inglés repurchases half of the shares held by the Qatari investor Al Thani for 387 million ...
Montero cools off Yolanda Díaz's proposal and advances that the surcharge on electricity companies w...
Mark NT
Mark NT
Mark NT was born and raised in the India. He worked at a literary development company as a publisher. He is a creative website writer for teens and a good book reviewer.


- Never miss a story with notifications

- Gain full access to our premium content

- Browse free from up to 5 devices at once

Latest stories


Please enter your comment!
Please enter your name here

Up to 75% off on Best Web Hosting