This time I am 25 basis points of increase of interest rates established by the Governing Council of the European Central Bank. In the wake of the Federal Reserve, which on Wednesday raised US interest rates by the same percentage, the ECB slows the pace of the tightening path from the 50 basis point increase set out in the previous three meetings to counteract inflation, but announces parallel a total quantitative tighteningstarting from July, interrupting the APP programme, i.e. the reinvestment of maturing securities purchased during quantitative easing. “We are not making any pause in rate hikes” – said the president Christine Lagarde during the traditional monthly press conference – we have "still some way to go".
Interest rates, here are the new percentages
As expected, the seventh rate hike in 10 months from Frankfurt it will therefore be 25 basis points. A percentage that causes the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3,75%, 4,00% and 3,25% respectively starting from May 10, 2023. It's about the highest levels since 2008. All board members agreed on the need to raise rates, even as some governors were pushing for a 50 basis point hike, Lagarde said.
“We are seeing inflation come down as a result of the significant drop in energy prices, but we haven't seen the full impact yet we want to return to our inflation target of 2% – added the number one of the ECB, who then affirmed: “Is the choice on rates a restrictive one, is it sufficient? Not yet".
"We are not dependent on the Fed, we are two different areas and the decisions we take respond to our mandate to pursue the 2% objective in the medium term. We certainly evaluate various factors and any repercussions - Lagarde clarified - and certainly currency relations have an impact but the decisions we make aim to achieve our inflation target and are taken independently ".
!The outlook for inflation continues to be too high for too longOverall, “the incoming information broadly supports the assessment of the medium-term inflation outlook that the Governing Council formed at its previous meeting,” reads the note released by Eurotower, in which the Governing Council stresses that the headline inflation has declined in recent months, but the “underlying price pressures remain strong“, and past rate hikes “are forcefully transmitted to the financial and monetary conditions of the euro area, while the delays and strength of the transmission to the real economy remain uncertain”. In short, things are going better, but there is still a long way to go, so further increases may be necessary.
In fact, Frankfurt underlined that the future decisions that the Governing Council will always be called upon to take based on the data – he reiterates – they will ensure that official rates are “brought to sufficiently restrictive levels and will be maintained at these levels for as long as necessary”. Any decision will continue “to be based on the assessment of the inflation outlook in the light of incoming economic and financial data, the dynamics of underlying inflation and the strength of the monetary policy transmission”, continues the note.
ECB: stop to reinvestments App, Pepp from July until the end of 2024
The ECB has also announced that it will continue to reduce the portfolio of Asset Purchase Program (App) of the Eurosystem at a measured and predictable pace. The decline will average €15 billion per month until the end of June 2023 and, starting in July 2023, there will be a halt in reinvestments within the App.
As regards the Pepp, instead, the Governing Council intends to reinvest the principal payments of maturing securities purchased under the program until at least the end of 2024.
As the banks are repaying the amounts borrowed under the targeted longer-term refinancing operations, the Governing Council "will regularly assess how the targeted lending operations contribute to its monetary policy stance," the statement concludes.
Lagarde to Governments: "No more support measures"
“With energy prices declining and risks to related supplies abating, it is important to startthe return of such measures promptly and in an agreed manner,” ECB President Christine Lagarde said at a press conference in Frankfurt. “Measures that fail to meet these criteria are likely to push up medium-term inflationary pressures, necessitating a stronger monetary policy response.”
Curb the euro, stock markets down
After the announcements of the ECB the exchange euro Dollar, which in the morning was around 1,1080 fell to 1,1017. The euro-yen exchange rate has already gone from 148,96 to 148,52, while the euro-pound exchange rate stands at 0,8777 from 0,8805.
On the stock, the Bags travel in moderate decline (Milan -0,3%), also weighed down by new fears about US banks, after the PacWest's Wall Street collapse.
