Intergeld | The ECB decided not to pinch its fingers and increased the interest rate of its main references again by 25 basis points, increasing the deposit facility to 4.0%, the main refinancing operations to 4.50% and the marginal lending rate to 4.75%. This decision was made under general reasoning within the committee Inflation was still perceived as too high for too long and nothing more significant than the correction of price estimates for the current and next two years.
If we look at it coldly, The adjustments that the ECB made to its price forecasts were not noticeable, but just the fact that the revisions to the general consumer price index were made for the current and next year The upward moves were more than enough reason for our central bank to opt for what the market called a “rise.” reserved“. The nuances in the forecasts went up for general prices from 2023 (from 5.4% to 5.6%) and 2024 (from 3.0% to 3.2%). On the other hand, core inflation remained untouched in 2023 and was reduced by a tenth in the next two years (2.9% and 2.2%, respectively).
The strange thing was that the underlying inflation forecasts were not lowered further, given that this was the case a clearly visible downward revision in growth figures, which is more likely to indicate a deterioration in aggregate demand and the corresponding impact on inflation. The most noticeable cut was the one made for next year from +1.5% to +1.0%, although the estimate of activity for 2023 had previously been lowered (from 0.9% to 0.7%). Afterwards, it was interesting that Lagarde highlighted the importance Downward revision of growth to 2024. Three quarters of this figure is due to the carryover effect from 2023 and the economy is now in several quarters of slow growth although, according to the Frenchwoman, the situation should improve next year.
Based on its current assessment, the Governing Council concluded that the ECB’s official interest rates have reached a level that, if maintained for a sufficiently long period, will contribute significantly to bringing inflation back to target in a timely manner returns, although based on the forecasts this is a question of 2025. The Agency will endeavor to ensure that future decisions ensure that official interest rates are set at a sufficiently restrictive level for as long as necessary, without closing the door to possible additional increases if indicators justify it.
Clearly, The ECB’s primary objective is to reduce inflation, according to the almost universal consensus when performing the 25 bp increase According to Lagarde, the Rate increases are transmitted to financing conditions more quickly than in previous cycles and have a limiting effect However, there was no comment on the speed with which financial conditions are being transmitted to the real economy. However, What is particularly noteworthy is that despite the visible interest rate cut, no visible economic decline is forecast.
Here we want to remember The wind favors activity in the Eurozone. A strong job market Although Christine Lagarde pointed out in the subsequent press conference that the labor market was weakening and the service sector was only creating a few jobs, rising wages and an expansionary fiscal policy that clearly supports growth. Here too we saw Lagarde’s call for governments to reduce support measures and instead focus fiscal policy on increasing productivity.
Finally, there was little difference in the balance and support provided by the ECB through its purchase programs, as we repeat the wording of the statement: “As regards the PEPP, the Governing Council intends to reinvest the principal payments of securities purchased under the program that are due at least until the end of 2024. In any case, the future liquidation of the PEPP portfolio will be managed in a way that avoids any disruption to the appropriate monetary policy stance.” What stood out in the markets was the downward correction of the euro (1.06 EURUSD) and the purchases of government bonds (Federal government -5.8 bp and 2.588% and 10-year Italian bond -10.7 bp and 4.33%). as the rise in interest rates and the cut in growth estimates were in line with a scenario in which a further increase in borrowing costs is less likely.
