European Central Bank sets interest rate hike in July, the first time in 11 years
Published at : June 16, 2022
The European Central Bank confirmed on Thursday it would carry out its first interest rate increase in 11 years in July, followed by another hike in September, and downgraded its economic growth forecasts. European shares slid and eurozone borrowing costs hit an eight-year high After ECB’s signal.
The announcement came after the bank's 25-member monetary policy council met in Amsterdam, saying inflation had become a “major challenge.” While Thursday's decision signaled a contractionary fiscal policy, the bank's actions still lag behind more than 60 other central banks around the world that have already raised rates this year.
“Inflation pressures have broadened and intensified, with prices for many goods and services increasingly strongly. Euro-system staff have revised their baseline inflation projections up significantly. These projections indicate that inflation will remain undesirably elevated for some time.” Christine Lagarde, President of the European Central Bank reported.
The ECB intends to raise the key ECB interest rates by 25 basis points at their July monetary policy meeting, and leave open the possibility that it would make a more drastic, half-percentage-point increase in September rather than the more usual quarter-point adjustment, depending on the updated medium-term inflation outlook. In May, annual consumer price inflation across the eurozone hit a record of 8.1%.
Like other institutions, the European Central Bank upwardly revised its inflation projections and slashed its growth forecasts. Annual inflation is now expected to hit 6.8% in 2022, declining to 3.5% in 2023 and 2.1% in 2024. This marks a substantial increase from its March projections of 5.1% in 2022, 2.1% in 2023, and 1.9% in 2024. Growth forecasts were revised downwards to 2.8% in 2022 and 2.1% in 2023, compared to its March projections of 3.7% in 2022 and 2.8% in 2023.
“However, moderating energy costs, the easing of supply disruptions related to the pandemic and the normalization of monetary policy are expected to lead to a decline in inflation,” Lagarde said.
After the announcement, the euro plummeted while the dollar index rose for a second straight day. The dollar index increased by 0.682 percent to 103.260 points, while the euro fell by 0.9 percent to $1.0618. With a weekly rise of more than 1%, the dollar is on track for its second straight weekly gain and its largest weekly increase in seven weeks.
President Lagarde claimed that “those conditions have been satisfied” to raise interests “on account of the ongoing reopening of the economy, a strong labor market, fiscal support, and savings built up during the pandemic.”
Anna Stupnytska, the global macroeconomist at Fidelity International, said in an interview with CNBC that the Federal Reserve’s aggressive move and European inflation have kept pressuring the ECB, and Euro vs Dollar became a spotlight for the market. But she also warned that “doing too much too soon would arguably be a riskier strategy for the ECB” as the economy growth is weakening.
SMG News、 ShanghaiEye.com Ziwen Lyu, Meixing Ren Contributed this article
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The announcement came after the bank's 25-member monetary policy council met in Amsterdam, saying inflation had become a “major challenge.” While Thursday's decision signaled a contractionary fiscal policy, the bank's actions still lag behind more than 60 other central banks around the world that have already raised rates this year.
“Inflation pressures have broadened and intensified, with prices for many goods and services increasingly strongly. Euro-system staff have revised their baseline inflation projections up significantly. These projections indicate that inflation will remain undesirably elevated for some time.” Christine Lagarde, President of the European Central Bank reported.
The ECB intends to raise the key ECB interest rates by 25 basis points at their July monetary policy meeting, and leave open the possibility that it would make a more drastic, half-percentage-point increase in September rather than the more usual quarter-point adjustment, depending on the updated medium-term inflation outlook. In May, annual consumer price inflation across the eurozone hit a record of 8.1%.
Like other institutions, the European Central Bank upwardly revised its inflation projections and slashed its growth forecasts. Annual inflation is now expected to hit 6.8% in 2022, declining to 3.5% in 2023 and 2.1% in 2024. This marks a substantial increase from its March projections of 5.1% in 2022, 2.1% in 2023, and 1.9% in 2024. Growth forecasts were revised downwards to 2.8% in 2022 and 2.1% in 2023, compared to its March projections of 3.7% in 2022 and 2.8% in 2023.
“However, moderating energy costs, the easing of supply disruptions related to the pandemic and the normalization of monetary policy are expected to lead to a decline in inflation,” Lagarde said.
After the announcement, the euro plummeted while the dollar index rose for a second straight day. The dollar index increased by 0.682 percent to 103.260 points, while the euro fell by 0.9 percent to $1.0618. With a weekly rise of more than 1%, the dollar is on track for its second straight weekly gain and its largest weekly increase in seven weeks.
President Lagarde claimed that “those conditions have been satisfied” to raise interests “on account of the ongoing reopening of the economy, a strong labor market, fiscal support, and savings built up during the pandemic.”
Anna Stupnytska, the global macroeconomist at Fidelity International, said in an interview with CNBC that the Federal Reserve’s aggressive move and European inflation have kept pressuring the ECB, and Euro vs Dollar became a spotlight for the market. But she also warned that “doing too much too soon would arguably be a riskier strategy for the ECB” as the economy growth is weakening.
SMG News、 ShanghaiEye.com Ziwen Lyu, Meixing Ren Contributed this article
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https://www.youtube.com/playlist?list=PLeyl7CQ2A5MMVTWr-zIXjsS4hhSQPmyes
■ What Chinese people's lives are like during the post COVID-19 period
https://www.youtube.com/playlist?list=PLeyl7CQ2A5MPrPTmIirpfgETu6VKVESXe
■ Views of foreign scholars on China and its affairs
https://www.youtube.com/playlist?list=PLeyl7CQ2A5MO9ua_nSK6slRPdUl-ovjRe
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