ECB to raise interest rates by at least half a point

Given the strong rise in prices, the probability of the ECB Governing Council to decide on a quarter-point increase increases, which means highest rise in history.

The ECB has only made a move of this magnitude once, on December 10, 2008, but in the other direction, down in the midst of a financial crisis after the bankruptcy of Lehman Brothers.

Last July, the ECB began raising interest rates by half a percentage point for the first time in eleven years.

ECB interest rates now at 0.50% and deposit facility at 0%, thus euro zone exited negative interest rates in July.

The ECB is now less worried about the risk of a permanent fixation of inflation and a recession, and is looking to curb demand as supply constraints push prices up along with high demand.

this energy and food prices may remain high wage increases will be very high after a long time.

Companies are faced with higher costs due to the high energy, raw material, transportation and logistics costs that are started to be transferred to their products and services.

Bottlenecks in the supply of industrial goods also push prices up.

In addition, the depreciation of the euro currency intensifies the increase in energy and other raw material prices.

Unions are demanding strong wage increases in many euro-sharing countries, including Germany, the region’s strongest economy.

Also, if Russia interrupts its energy supply and companies have to stop production, the threat of recession increases and households reduce consumption because otherwise the energy cost would be too high.

Gilles Moëc, chief economist at AXA Investment Managers, has changed his mind and expects a 75 basis point move in August due to the sharp rise in consumer prices.

Several members of the ECB Council, in favor of a 75 basis point increase andAs a minimum, 50 basis points.

“The fact that we haven’t heard much from the ‘pigeon’ (soft) wing shows that the opposition is weak,” says Moëc.

“The message to those responsible for setting prices – especially employers and unions – is that, beyond the current economic slowdown, the ECB will not hesitate to curb demand in the medium term if an acceleration in wages turns the current shock into a new permanent regime”.

Moëc predicts a strong economic contraction in the coming months and stresses that the ECB may see the recession as the “only solution” to lower prices.

“Frankfurt recession is seen as the only solution to achieve the goal, not just a side effect of the necessary monetary tightening”He thinks of Moëc.

But Pimco portfolio manager Konstantin Veit expects an increase of 50 basis points and the ECB will say further rate hikes are appropriate.

Veit estimates that the ECB will seek to “bring official interest rates into neutral territory at reasonable speed” and expects 50 basis point increases in official interest rates in October and December, and 25 basis points increases next year, as the hike cycle. shifting from policy normalization to policy tightening.

Probability of a 75 basis point hike they are not unimportantAccording to Annalisa Piazza, fixed income analyst at MFS Investment Management, inflation will remain well above target for longer and the ECB is nervous about the need to push the rate hike cycle forward before the eurozone economy plunges into recession this year.

“Our baseline scenario is for the ECB to raise key interest rates by 50 basis points in September, October and December, and pause laterRe-evaluating the broader economic picture with the slightly ‘neutral’ 1.5%,” adds Piazza.

The ECB will release its new quarterly macroeconomic forecasts on Thursday, which are likely to revise growth down and inflation up.

In June, ECB expects 6.8% inflation Y 2.8% growth in 2022.

According to June calculations, inflation will be 3.5% and growth will be 2.1% in 2023, and both will be 2.1 in 2024.