a European Central Bank (ECB) It announced Thursday that it will “end” its public debt purchase program from July 1, and that at next month’s monetary policy meeting, it will raise reference rates, paving the way for Strengthening credit in the euro area.
However, Central Bank President Christine Lagarde sought to reassure markets regarding the ECB’s strategy at a time when a slowdown in the European economy is also expected, ensuring that the ECB will maintain “gradualism and flexibility in managing monetary policy”. “The coming months.
During the press conference following Thursday’s meeting in Amsterdam, Lagarde said the path to raising interest rates would be “gradual, but continuous”, to the council that brings together central bank governors in 19 countries of the Gulf Cooperation Council. Euro and members of the Executive Committee of the European Central Bank.
Currently, at this meeting, the central bank has kept interest rates unchanged, but indicated in the current situation It “intends” to increase it by 25 basis points in July. With this decision, the ECB prepares the ground later for not applying a negative interest rate value to the deposit facility (the one that determines the interest that banks receive or pay on deposits made with the ECB).
This rate is currently -0.5%. With a rate hike in July, it will remain in negative territory, heading to -0.25%, and in September, the central bank may decide, once again, to raise interest rates again, bringing this benchmark indicator to zero. In its statement on Thursday, the European Central Bank acknowledged that it will decide to further deteriorate, given the prospects for inflation. “If the medium-term inflation outlook persists or deteriorates, a further increase at the September meeting would be appropriate,” he says.
Other reference rates are no longer in negative territory. The point that the main refinancing operations (the ones that banks pay when they borrow from the central bank) is zero (it will rise in July to 0.25%) and the interest rate on the marginal lending facility (the ones that banks pay when they take out loans outside the day) is currently at 0.25% and will rise to 0.5% in July.
In the same statement in which monetary policy decisions were announced, it was Council led by Christine Lagarde announces that it has decided to terminate its purchases of liquid assets under the stimulus program with effect from July 1, 2022. However, it wishes to continue reinvesting, in full, the principal payments on securities of this program that mature “within a period of time”. An extended period of time after the date on which the ECB’s benchmark interest rates begin to increase, and in any event, for as long as necessary to maintain adequate liquidity conditions and an appropriate stance on monetary policy.”
Regarding the emergency asset purchase program launched during the pandemic, the European Central Bank wants to reinvest the expired securities “until the end of 2024 at least”.
Inflation reached 6.8% in 2022
The European Central Bank acknowledges that it expects inflation to “remain undesirably high for some time”, although it expects moderation in energy costs, reduced disruptions in supply chains related to the pandemic and “monetary policy normalization” to lower inflation.
Forecasts for this indicator were revised upwards from what the European Central Bank forecast in March, after the outbreak of the war in Ukraine. For this year, the European Central Bank reports inflation of 6.8% in the eurozone, projecting a slowdown in the next two years, to 3.5% in 2023 and 2.1% in 2024.
The revision followed an escalation in recent months, with inflation reaching 8.1% in the eurozone as a whole. In May, inflation rose again significantly, mainly due to higher energy and food prices, as well as the impact of the war. But inflationary pressures have widened and intensified, with prices of many goods and services rising sharply,” the European Central Bank notes.
Christine Lagarde pointed to rising inflation (“price increases are becoming more prevalent across all sectors”), noting that the energy price index is 39.2% higher than it was a year ago and that “food prices rose 7.5% in May, reflecting Partly the importance of Ukraine and Russia among the world’s major producers of agricultural commodities.
The European Central Bank revised downward revisions to the Eurozone economic growth forecast in 2022 and 2023. While in March it projected that the 19-country region would grow 3.7% this year, it now reports a change in gross domestic product (GDP) of 2.8%, followed by a slowdown to 2.1% in 2023, instead of the previously expected 2.8%. For 2024, it indicates a further slowdown, with the economy growing at 2.1%, in this case, higher than the expected change in March, which was 1.6%.
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