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ECB expected to raise interest rates in Q4
2022-02-08
1029
Under the influence of multiple factors such as the epidemic and the supply chain crisis, many economies around the world are struggling with inflation. Not long ago, the Fed's statement was already obvious, and the European Central Bank also released a signal to raise interest rates, intending to raise interest rates by 25 basis points in the fourth quarter of 2022, and raise interest rates twice in 2023, in order to save Europe's inflation rate exceeding 5%.
Expected to raise interest rates in the fourth quarter, the European Central Bank will also turn into an "eagle"?
For the first time in more than ten years
On the 6th local time, Dutch Central Bank President Klaas Knot said that the European Central Bank will raise interest rates in the fourth quarter of this year. If realized, it would be the first rate hike in more than a decade. As the first member of the central bank to respond to the question of raising interest rates, Knott also said in an interview with Dutch TV that he supported the end of the European Central Bank's asset purchase program as soon as possible.
"My personal view is that our first rate hike will happen around the fourth quarter of this year. Normally, we raise rates by 25 basis points, and I have no reason to expect that we would take a different step." As the most "eagle" of the European Central Bank One of the officials, Knott, added that after the first rate hike, a second rate hike is likely to take place in the first quarter of 2023.
"At the moment we're still on the gas," Knott said, referring to bond-buying by the European Central Bank, which has amassed 220 million euros in assets since the outbreak of the coronavirus nearly two years ago. "We have to end this situation as soon as possible. This is just adding fuel to the fire."
In last week's monetary policy decision, the ECB reiterated its commitment to slowing asset purchases in 2022. In the second quarter of this year, the asset purchase plan will be implemented at a rate of 40 billion euros per month, and in the third quarter, it will buy bonds at a rate of 30 billion euros per month; from October onwards, it will buy bonds of 20 billion euros per month, but there is no indication of the end of the purchase. Debt date.
Although Knott cannot fully represent the ECB, this statement undoubtedly led the outside world to speculate whether the ECB has also begun to turn "eagle".
In fact, on January 20 not long ago, European Central Bank President Christine Lagarde also said in an interview with the media that the European Central Bank is less likely to follow the Fed to raise interest rates. She believes that energy prices and supply problems will ease, and inflation in the euro zone will gradually improve this year.
On the same day, Pablo Hernandez de Cos, a member of the European Central Bank's Governing Council, also issued a prediction that "no rate hikes are expected in 2022."
Inflationary pressure exceeds expectations
In half a month, the wind seems to have changed. Of course, this is not surprising. After all, the unexpected inflation has put a lot of pressure on the European Central Bank. According to preliminary statistics released by Eurostat on February 2, the euro zone inflation rate continued to climb to 5.1% in January 2022, higher than the current 2% inflation target of the European Central Bank and the fastest inflation since the creation of the euro.
Specifically, the inflation rate in January was 5.1% in Germany, 3.3% in France, 5.3% in Italy, and 6.1% in Spain. Inflation in these major European economies is at a high level.
Xu Xuemei, an assistant researcher at the Institute of World Economics and Development of the China Institute of International Studies, told the Beijing Business Daily that there are two main reasons for the higher-than-expected inflation. On the one hand, the prices of international bulk commodities such as oil and gas will rise sharply in 2021. "Energy prices and raw material prices in the euro area continue to rise, and downstream industry prices follow suit, thereby pushing up inflation."
As of 17:00 on February 4, Beijing time, the price of light sweet crude oil futures for March delivery on the New York Mercantile Exchange was 91.66 US dollars per barrel, an increase of 1.54%; the price of London Brent crude oil futures for April delivery closed at per barrel A barrel of $92.41, or 1.47%. Data show that from the beginning of December last year to the present, in just two months, the settlement prices of Brent and WTI crude oil have risen by 33.11% and 40.93% respectively.
On the other hand, there is the contradiction between supply and demand, she analyzed: "After countries promoted vaccination and moderately relaxed prevention and control measures, the consumption demand suppressed by the new crown pneumonia epidemic continued to release, but the global production capacity failed to keep up in time, and the industrial chain and supply chain were bottlenecked. The problem will also persist in 2021 due to the impact of new mutated viruses such as Omicron, resulting in a shortage of supply."
In addition to the unexpected inflationary pressure, there are more considerations for the ECB's signal to raise interest rates at this point.
Xu Xuemei said that as a factor affecting interest rate hikes, the level of inflation is definitely a very important reference indicator at present, but factors such as the development of the new crown epidemic, the economic growth rate of the euro zone, and the conditions of the job market should also be considered.
Even if the "high fever" of inflation is hard to subside, Lagarde's response to interest rate hikes has always been quite cautious. She said the ECB's Governing Council would not make hasty decisions and would always be on the lookout for changes in conditions and economic data in the coming months.
"The March and June meetings will be critical in determining whether the three criteria for our forward guidance have been adequately met," she said.
It is worth mentioning that not long ago, the Federal Reserve just stated that it is ready to raise interest rates. In this regard, Xu Xuemei said that the Fed’s interest rate hike does have a strong spillover effect, which has an impact on the policy adjustment of other central banks, but the policy adjustment of the European Central Bank should be Mainly taking into account their own economic growth and inflation.
The shock after the rate hike
As for the impact after the rate hike, Xu Xuemei said that if the European Central Bank raises interest rates, it is expected to lead to a stronger euro, which may lead to international capital outflows from emerging markets and developing economies, and those economies with higher debt levels will be more affected.
Just after the European Central Bank hinted at raising interest rates, the financial market also had a lot of shocks. Euro zone securities yields were higher, with German and Italian 10-year bond yields up around 10 and 22 basis points, respectively. At the same time, the exchange rate of the euro against the dollar also rose sharply, rising from 1.1260 to 1.1400 less than two hours after the decision to raise interest rates was released.
In addition, Xu Xuemei also reminded, “Inflation has become a common economic and social concern in many countries. Under the circumstance that central banks such as the United Kingdom raise interest rates and the Fed’s interest rate hike expectations are strengthened, if the European Central Bank also chooses to raise interest rates, it may make the global central bank’s interest rate increase. The wave of interest rate hikes has been further intensified, driving more countries to tighten monetary policy."
The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.
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