Faced with inflation close to 10% (9,9% in September), the European Central Bank he reacts by raising for the third consecutive time interest rates of 75 basis points, which will make mortgages more expensive. A decision widely expected by the market.
The main rate thus rises to 2%, the highest since January 2009, the rate on deposits is 1,5%, while that on marginal loans is 2,25%. And that's not all, because in its traditional note, the ECB lets it be known that the governing council plans “to raise interest rates further to ensure the timely return of inflation to the 2% objective over the medium term”. “Inflation continues to be far too high and will stay above target for an extended period of time,” said the president of the ECB Christine Lagarde during the usual monthly press conference. The Eurotower therefore aims “to reduce support for demand and to protect against the risk of a persistent upward shift in inflation expectations”. In any case, future decisions will be taken "meeting after meeting".
ECB: in addition to the rate increase new rules for Tltro loans
In addition torate hike, la ECB decided to amend the terms and conditions applied to the third round of targeted longer-term refinancing operations (other loans), an instrument which during the acute phase of the pandemic was fundamental for countering the downside risks to price stability. Today, the Filter “It needs to be recalibrated to ensure it is consistent with the broader monetary policy normalization process and enhances the pass-through of key rate increases to bank lending conditions,” the ECB said. Starting from 23 November 2022 and until the maturity or prepayment date, the interest rate on TLTER 3 will be indexed to the average of the ECB's reference interest rates, while banks will be offered additional dates for the voluntary prepayment of the amounts .
And again: the remuneration of compulsory reserves will be fixed at the rate on deposits "in order to better align this remuneration to the conditions of the money market". For long-term refinancing operations, in particular, a rate indexed to the average of the ECB rates for the duration of the loan will be applied.
Lagarde: "The economy will continue to slow down"
The euro area economy will continue to slow down late this year and early next year. Christine Lagarde said it in her usual monthly press conference. According to the president of the ECB, "Inflation continues to be far too high and will remain above the target level for a prolonged period of time". “In recent months – he continued – the surge in energy and food prices, supply bottlenecks and the recovery in demand after the pandemic have led to a generalization of pressure on prices and a rise in inflation. The Governing Council's monetary policy aims to reduce support for demand and protect against the risk of a persistent increase in expected inflation", explained the number one of the ECB, underlining however that the labor market "continues to do well" , although the economic weakening could cause a slight increase in unemployment.
Lagarde: "The hikes aren't over"
In this context “we have made further progress in withdrawing the accommodative stance of our monetary policy. But are we done? the answer is no and we will decide the next path of monetary policy based on the data”, said the president of the ECB adding that “the rate hike path is not over and normalization continues”.
Going forward, “we will look above all at three precise factors: first of all, the outlook on inflation, which takes into account the trend of the economy and also the prospects of recession; secondly, we will look at the steps taken so far, because we have already raised rates by 200 basis points in the last few meetings; finally, we will look at the problems and transmission mechanisms of monetary policy, because every decision we make does not have immediate effects, but there is a time for it to be transmitted”, he continued.
To date, continued Lagarde, the risks to growth are "clearly to the downside, especially in the short term". “A significant risk – she added – is that the war drags on”.
Lagarde: "We will talk about the App program in December"
The number one of the Eurotower then anticipated: “We will discuss the key principles of the App wallet reduction“, i.e. that of securities purchases. A sensitive topic for the markets on which the ECB discussed in general at the last meeting of governors in which it was decided, in fact, to address the details of this reduction in the App portfolio at the end of the year, said Lagarde.
During the meeting, he revealed during the press conference, "there was no discussion on the Tpi", i.e. the Transmission Protection Instrument, an instrument aimed at supporting the transmission of the ECB's monetary policy in all the countries of the Eurozone.
The central banker also asked governments to "pursue fiscal policies that demonstrate their commitment to gradually reduce the high public debt ratios". And again: “Structural policies should be designed to increase the growth potential and supply capacity of the euro area and to strengthen its resilience, thus helping to reduce pressure on prices in the medium term”.
ECB raises interest rates: the reaction of the Stock Exchanges
During the press conference in Lagarde, the stock exchanges, which were in negative territory until 14 pm, reversed their trend. Piazza Affari now gains 0,46%, Madrid rises by 0,2%, Frankfurt and Paris are around parity.
