The European Central Bank raises interest rates by 75 basis points. What does this increase represent? – Markets

on the other side, In the new forecast presented This Thursday, after the Governing Council, the European Central Bank said it expects more inflation and less economic growth in the eurozone from next year. The monetary authority now expects eurozone inflation to reach 8.1% in 2022, compared to an estimate of 6.8% set in June. For 2023 the projection rises to 5.5% (from 3.5%) and in 2024 it rises to 2.3% (two-tenths more).

For the debt purchase programme, the ECB ensures that it will continue to reinvest in full the amounts owed under the Regular Programme.
What did Lagarde say?

“Inflation remains very high and is likely to remain above our target for an extended period of time,” President Christine Lagarde warned at the press conference following the meeting. “Although supply constraints are easing, they are still gradually feeding into consumer prices and putting pressure on inflation, as is the recovery of demand in the services sector.”

He added, “Given our current assessment, we expect in several future meetings to raise interest rates further to reduce demand and protect against the risks of an upward shift in elevated inflation expectations.”

How did the markets react?

In reaction to the decision, the major European markets started trading lower, canceling the early morning gains. However, in the wake of the banking sector – the main beneficiary of the ECB decision – I managed to recoverexcept for the German index, which ended at the waterline, with a slight depreciation of the currency.

The Euro made the opposite move. It rose above parity with the dollar, and later fell after the US Federal Reserve Chairman’s speech, Jerome Powell who also confirmed that the Fed It will maintain monetary policy tightening. The interest rate on sovereign debt in the euro area worsened.

What does this decision mean?

The European Central Bank does not directly intervene in inflation, however, through its monetary policy instruments (especially interest rates), it tries to influence household and corporate spending, and thus the prices of goods and services. It may take several quarters before the decision is fully reflected in the economy.

The immediate reaction to the development of these interest rates will be the Euribor (determined by the average at which 57 banks in the eurozone lend money to each other in the interbank market), the rate at which most Portuguese housing loans are indexed. .

With this historic rally in the ECB, Euribor is also expected to advance. This Thursday, Euribor prices fell to six months, to 1.354%, and to 12 months, to 1.903%, and rose to three months, to 0.836%, compared to Wednesday, reaching a new high.