The European Central Bank has finally eased the tightening of its monetary policy after the strongest streak of interest rate hikes on record.
Specifically, the ECB has limited itself to raising the price of money by a quarter of a point, this Thursday, to situate the official rates at 3.75 percent, the marginal credit facility at 4 percent and the interest rate. deposit at 3.25 percent.
The last three increases had been half a point, so this latest decision means moderating the rate of increases, as expected by analysts who carefully examine each appearance by members of the institution.
The context that has allowed this slowdown has been the tightening of financing conditions in the old continent and some inflation data from the Eurozone that, for the first time in ten months, have shown signs of relaxation.
“The previous increases in rates are being transmitted strongly to the financing and monetary conditions of the euro area,” the ECB statement asserted in this regard.
The ECB moderates the step but remains determined to fight inflation
Yes ok, the increase adopted this Thursday also shows the determination of the institution to fight against inflation no matter how much these measures can hurt the economy.
Not in vain, the ECB accumulates seven consecutive increases in interest ratesin the most abrupt escalation in the history of the institution.
And the messages from Frankfurt have been very emphatic in this sense, hinting that interest rate hikes are not over.
Monetary policy “is not restrictive enough”, is one of the phrases that Christine Lagarde, president of the ECB, has pronounced at a moment of the press conference that has followed the rate decision.
Some other messages he has repeated in this regard are: Monetary policy “is a journey and we are not done” and all members of the governing council are “determined” to fight inflation prospects “too high and for too long” .
The ECB “is not taking a pause”, it has insisted several times.
The ECB’s objective remains to reduce inflation to 2 percent
Another clue to the ECB’s determination to continue raising rates is its insistence that the institution’s goal is “for inflation to return to the 2 percent target in a timely manner in the medium term”.
In this sense, the ECB has explained that “future decisions of the Governing Council will ensure that official interest rates are set at sufficiently restrictive levels to achieve” that objective and “they remain at those levels for as long as necessary”. .
The data will mark the magnitude of the increases
In any case, the ECB has avoided specifying the magnitude of the increases that it will adopt in the next meetings and has limited itself to adding that they will be marked by the macroeconomic data that is being published.
“The Governing Council will continue to apply a data-driven approach to determine the appropriate level and duration of the restriction“, says the statement.
In particular, the Governing Council’s decisions on official interest rates “will continue to be based on its assessment of the inflation outlook in the light of new economic and financial data, underlying inflation dynamics and the intensity of the transmission of monetary policy,” he adds.
The European banking sector is resilient
Regarding the effect that restrictive monetary policy could have on the European banking sector, the president of the ECB, Christine Lagarde, has asserted that European banks are “resilient”, as has been demonstrated in recent weeks, after the insolvency cases detected in several US banks and Credit Suisse, which have not infected any entity in the European Union.
The ECB follows in the footsteps of the Fed
With today’s decision, the ECB has followed in the footsteps of its American counterpart, the Federal Reserve, which this Wednesday approved a new rise in official interest rates of 25 basis points, up to 5-5.25 percent.
Markets, however, appreciated a moderation of speech in the post-meeting statement, in which the Fed no longer anticipates further tightening, but instead says it will carefully monitor the data to determine if further tightening is necessary.