The ECB has decided to raise interest rates by half a percentage point, bringing the rate on main refinancing to 3%, that on deposits to 2.50%, and that on marginal loans to 3.25%. And, given the pressure of inflation, the Governing Council intends raise rates another 50 basis points at the next meeting in March. Lagarde does not rule out further increases after March.
“No, no, no”: this is how he replied on the assumption that, after a third consecutive rise in interest rates anticipated for the month of March, the European Central Bank may have finished tightening the cost of money.
Economic activity in the euro area, despite growth of 0.1% in the fourth quarter of 2022, “has slowed significantly and we expect it to remain weak in the near term,” said Lagarde, indicating amid political uncertainty, war and high inflation factors that will continue to hold back growth, before a subsequent recovery.
The risks to the inflation scenario have become “balanced”, said the ECB president, abandoning the expression, used until the December Governing Council, according to which these risks were “on the upside”. The ECB has also revised the risks to economic growth, bringing them to “balanced” from “on the downside”.
Government aid to protect the economy from increases in energy prices – according to Lagarde – should be “targeted and provide incentives to consume less energy”. And “now that the energy crisis is less acute, it is important to start and reduce the measures” of support, because the measures that “do not respect these principles, create pressure on inflation and this requires a stronger monetary policy response”.
Lagarde explained that the economic data will have to be evaluated after March. No one should doubt, you stressed, the ECB’s determination to bring inflation back to 2%.
Seat in decided rise for the European stock exchanges who bet on the approaching end of the ECB’s bullish cycle, which would lack 50/100 basis points to reach the peak in rates.
“It seems clear that the peak of the hike cycle will be in the range between 3 and 3.5% for the ECB deposit rate. But it is difficult to have an accurate view at the moment,” said Sylvain Broyer, chief economist at S&P EMEA. Global Ratings. Frankfurt ended trading up 2.16% to 15,509 points, Paris closed up 1.26% at 7,166 points while London it rose 0.76% to 7,820 points.
Wall Street proceeds in essentially positive territory with the Nasdaq up by 3.10% to 12,182.95 points and the S&P 500 advancing by 1.36% to 4,174.41 points. The Dow Jones instead trudges and loses 0.30% to 33,987.72 points.
Collapse of Italian government bond yields on the day of the ECB, with investors betting on the end of the bull cycle approaching and on a terminal rate between 3 and 3.5%. The spread between the ten-year BTPs and the German Bunds closed by 18 basis points, at 182, while the yield on the Italian ten-year bond sank by 39 points, to 3.89%, in a context of double-digit declines for all sovereign bonds of the Eurozone. For the yield of the BTP, this is the biggest drop since March 2020
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