–Leaves Open Possibility of Bigger Rise in September
By Laurie Laird
LONDON (MaceNews) – The European Central Bank will raise interest rates by a quarter percentage point at its next meeting in July with another – potentially larger increase – slated for September, the ECB announced Thursday.
“Inflation is undesirably high,” said ECB President Christine Lagarde, addressing reporters after this week’s governing council meeting, adding that the risks to the inflation outlook are primarily “on the upside.”
The council will end its Asset Purchase Programme at month end, in line with previous forward guidance, paving the way for the rate hike next month. The deposit facility will remain at -0.5% until then.
Rate setters expect “to raise the key interest rates again in September,” according to a statement released at the conclusion of the meeting. “If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting.”
The ECB has drawn fire for moving too slowly to counter rising inflation; the Bank of England and the Federal Reserve have already begun unwinding the extremely accommodative policy implemented during the pandemic.
The governing council dramatically upgraded its inflation outlook. HICP is expected to average 6.8% in 2023, up from the 5.1% pace published in March. Inflation will hit 3.5% next year (compared to previous prediction of 2.1%), returning to near-target 2.1% in 2024.
At the same time, growth will slip to 2.8% this year (down from a 3.7% pace predicted in March), slowing further to 2.1% in 2023 (down from the previous forecast of 2.8%).
Several governing council members have called for an accelerated pace of increases over the past weeks, but President Lagarde insisted that latest policy decision was reached “unanimously.”
Anticipation of tighter ECB policy has led to a widening of spreads between German bonds and those on the more-heavily-indebted states on the eurozone periphery, leading the ECB to commit to reinvesting the proceeds of PEPP assets until the end of 2024. “We are committed to preventing fragmentation risks in the Euro area,” said Lagarde.