Thomas Lohnes | Getty Images News Getty Images The European Central Bank on Thursday reaffirmed its intention to raise interest rates at its policy meeting next month and downgraded its growth forecasts. Following its last monetary policy meeting, the Governing Council announced that it intends to raise its key interest rates by 25 basis points at its July meeting. The ECB expects a further increase in the September meeting, but said that the scale of this increase will depend on the evolving trajectory of the medium-term inflation outlook. At present, the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility remain unchanged at 0.00%, 0.25% and -0.50% respectively. “Beyond September, based on its current assessment, the Governing Council expects a gradual but steady course of further interest rate hikes to be appropriate,” the ECB said in a statement on Thursday. “According to the Board’s commitment to the 2% medium-term target, the rate at which the Board will adjust its monetary policy will depend on the incoming data and the way in which it will assess inflation for evolution in the medium term.” . Annual consumer price inflation in the 19-nation eurozone hit a new record high of 8.1% in May, but the ECB said in previous directives that a first rate hike would come only after the formal end of net asset purchases. on July 1st. Markets have been eagerly awaiting the Amsterdam meeting on Thursday, the first board meeting outside Frankfurt since the start of the coronavirus pandemic, to indicate how aggressive interest rate shifts should be in the coming months. Policy makers face the challenge of curbing inflation without exacerbating the economic slowdown resulting from the war in Ukraine and the related sanctions and embargo imposed between the European Union and Russia, which were previously a major source of energy imports. . Economists are divided over whether to expect 25 basis points or 50 basis points in July and September, with the ECB generally expected to climb negative ground by the end of September from its current all-time low. -0.5%. .
Growth slowdown, higher inflation
The ECB also downgraded its growth forecast and revised upwards its inflation forecast. Annual inflation is now expected to reach 6.8% in 2022, falling to 3.5% in 2023 and 2.1% in 2024. This marks a significant increase from the March forecast to 5.1% in 2022, 2.1% in 2023 and 1.1% in 2024. Growth forecasts were revised significantly down to 2.8% in 2022 and 2.1% in 2023 and slightly revised to 2.1% in 2024. This compares with forecasts at the ECB meeting in March for 3, 7% in 2022, 2.8% in 2022 and 2.8% in 2023 to 2.1% in 2024. 2024. Randall Krosner, a professor of economics at the University of Chicago and a former Federal Reserve administrator, told CNBC ahead of Thursday’s meeting that it was “very important” that the ECB start moving around interest rates. The US Federal Reserve began raising interest rates in March and raised 50 basis points in May, the highest in 22 years, with the minutes of the FOMC meeting showing further aggressive increases in the future. The Bank of England raised interest rates in four consecutive sessions to raise the key interest rate to a 13-year high. “Inflation is very high, it has the potential to consolidate unless [ECB policymakers] “They are moving and moving aggressively and making it clear that they are going to go further,” Kroszner told CNBC’s “Squawk Box Europe” on Thursday. “They run the risk of consolidating inflation, inflation expectations not being consolidated and having to raise interest rates much higher than they should otherwise.” However, Kroszner expressed sympathy for the difficult position of the Governing Council, given Europe’s proximity to the war in Ukraine, its interdependence with Russia and, consequently, its situation of financial risk. “Their concern is that there are so many negative shocks coming from the war, the sanctions, the uncertainty, that the economy will slow down even without raising interest rates, so inflationary pressures will subside,” he said. “But there is enough inflationary pressure and enough risk that inflation expectations will not be consolidated, so they really have to move.”
