Post by account_disabled on Mar 4, 2024 3:41:23 GMT -6
There were no surprises. Fulfilled word. As announced on several occasions by the president of the European Central Bank (ECB), Christine Lagarde, the price of money in the eurozone rose again this morning by a quarter of a point. Consequently, the interest rate on the main financing operations and the interest rates on the marginal credit facility and the deposit facility will increase to 4.25%, 4.50% and 3.75%, respectively. . This is the ninth consecutive increase. We are at the highest levels in the last 23 years, since May 2001. The hawks continue to set the tone, despite the progress that inflation has shown in recent months. The ECB in its note explains that the inflation nightmare has not yet gone away. “Developments since the last meeting support the expectation that inflation will continue to fall for the rest of the year, but will remain above target for an extended period. Although some indicators show signs of moderation, core inflation remains at generally high levels. «says the ECB. It must also be taken into account that interest rates (3.75-4.5%) continue to be below eurozone inflation (which stands at 5.5%) and that this is well above the target.
Both factors formally induce the ECB to continue tightening. Likewise, the fact that the labor market continues to maintain its strength suggests that the engine of the economy is still too hot and that it may be Job Function Email Database better to cool it down a bit. Still, economic activity has slowed in the eurozone, as evidenced by PMI data. The PMI composite index fell below the key 50 level for the first time in six months in June (49.9) and fell to 48.9 in July, below expectations. Hard data paints a similarly bleak picture, as both retail sales and industrial production were disappointing in May. The first indicator has remained flat in each of the last two months, while the second recorded its largest year-on-year drop since October 2020 (-2.2%). But it seems that these signals are not enough to indicate that we are facing a turning point and that prices are under control. There are unusual delays in the transmission of monetary policy to the real economy this cycle.
It must be taken into account that monetary tightening has not yet had its full effect and that central banks insist that the alternative would be much worse, because if higher inflation took hold, they would have to raise interest rates even further, causing more pain in the economy,” Nadia Gharbi, European economist at Pictet WM, wrote in a note. A further economic slowdown would make them more cautious, but even with greater confidence in the moderation of inflation, they may exaggerate their aggressive line. In any case, the ECB has to avoid increasing financing costs in weaker and more indebted economies and, at the same time, be credible in the face of inflation," she adds. A difficult equation to fulfill, with which all eyes are now on September. Analysts believe there should be another small increase, and from there they look at the data to see if further adjustment is necessary. For now, although there are more signs that the tightening is beginning to trickle down to the real economy, core inflation - excluding raw energy and food - may remain high and volatile and not lose enough momentum to justify a pause in inflation increases. types in September.
Both factors formally induce the ECB to continue tightening. Likewise, the fact that the labor market continues to maintain its strength suggests that the engine of the economy is still too hot and that it may be Job Function Email Database better to cool it down a bit. Still, economic activity has slowed in the eurozone, as evidenced by PMI data. The PMI composite index fell below the key 50 level for the first time in six months in June (49.9) and fell to 48.9 in July, below expectations. Hard data paints a similarly bleak picture, as both retail sales and industrial production were disappointing in May. The first indicator has remained flat in each of the last two months, while the second recorded its largest year-on-year drop since October 2020 (-2.2%). But it seems that these signals are not enough to indicate that we are facing a turning point and that prices are under control. There are unusual delays in the transmission of monetary policy to the real economy this cycle.
It must be taken into account that monetary tightening has not yet had its full effect and that central banks insist that the alternative would be much worse, because if higher inflation took hold, they would have to raise interest rates even further, causing more pain in the economy,” Nadia Gharbi, European economist at Pictet WM, wrote in a note. A further economic slowdown would make them more cautious, but even with greater confidence in the moderation of inflation, they may exaggerate their aggressive line. In any case, the ECB has to avoid increasing financing costs in weaker and more indebted economies and, at the same time, be credible in the face of inflation," she adds. A difficult equation to fulfill, with which all eyes are now on September. Analysts believe there should be another small increase, and from there they look at the data to see if further adjustment is necessary. For now, although there are more signs that the tightening is beginning to trickle down to the real economy, core inflation - excluding raw energy and food - may remain high and volatile and not lose enough momentum to justify a pause in inflation increases. types in September.