ECB signals quarter-percentage-point rise in July, bigger move in September – POLITICO


FRANKFURT – The European Central Bank will end its bond purchases early next month and plans to raise interest rates for the first time in more than a decade by 25 basis points at the July meeting, with inflation expected to exceed the central bank’s 2% target until at least 2024, he said on Thursday.

In a statement after its meeting in Amsterdam, the central bank said it also “expects” to raise rates in September by a “larger increase” if the current inflation outlook does not improve. . Beyond September, he “expects that a gradual but sustained trajectory of further interest rate hikes will be appropriate.”

The strong signal of a bigger interest rate hike in September will come as a hawkish surprise, given that ECB Chief Economist Philip Lane recently called the 25 basis point moves “the pace of reference “.

High inflation is a major challenge for all of us. The Governing Council will ensure that inflation returns to its medium-term target of 2%,” the ECB said.

In an unprecedented move, the ECB also released its new staff projections for growth and inflation.

IMF staff significantly revised inflation projections upwards to 6.8% in 2022 and 3.5% in 2023, while the main medium-term inflation projection indicated above-target inflation to 2.1% in 2024.

Heading into today’s meeting, five members of the Governing Council had expressed support for larger rate hikes to contain inflation. The new projections strengthen the case for aggressive action to control inflation expectations, to avoid higher wage demands that would further fuel inflation.

Hawks will likely applaud the ECB’s significant upside revision to eurozone GDP growth in the first quarter and updated staff forecasts, which call for growth well above any stagflation or recession territory: staff lowered the GDP outlook for this year and next to 2.8% and 2.1%. percent, respectively, but revised it up to 2.1 percent in 2024.

“The Governing Council stands ready to adjust all of its instruments, incorporating flexibility if necessary, to ensure that inflation stabilizes at its medium-term target of 2%,” he said.




Politico

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