In July and September the ECB will raise interest rates on the euro, increasing the cost of borrowing for the first time since 2011. This was confirmed today by the Frankfurt institute, specifying that next month's increase will be 25 basis points, while that of the end of summer has yet to be quantified: “If medium-term inflation prospects persist or deteriorate in the press release – a larger increase would be appropriate at the September meeting”.
Beyond September, “the Governing Council anticipates that a gradual but sustained path of further interest rate hikes In line with the Governing Council's commitment to the 2% target over the medium term, the pace at which the Governing Council adjusts its monetary policy will depend on incoming data and how it assesses developments. of inflation in the medium term”.
Meanwhile, it will also put an end to QE net asset purchases starting July XNUMX.
All of these decisions officially mark the end of the ultra-expansionary monetary policy by the European Central Bank.
The reaction of the markets: Eurozone bonds are flying
Soon after the announcements by the ECB, the European stock exchanges have increased the losses. At the beginning of the afternoon, Milan lost 1,4%. Frankfurt (-1,1%) and Paris (-0,9%) are doing better.
Meanwhile, on the debt market, the Btp-Bund spread widens above the threshold of 210 basis points. The sales affecting all Eurozone bonds after the recovery marked in the morning. Yields are all up sharply, with the German Bund at new highs, above the 1,4% threshold, and the 3,55-year BTPs soaring to 3,47 percent (from yesterday's XNUMX%).
In the currency field, the euro is traveling on a roller coaster: first it loses altitude, it suddenly goes below 1,07 dollars, then it rises rapidly and now it reaches 1,0743, above the pre-ECB levels of 1,0723.
The new forecasts on GDP and inflation in the Eurozone
On the macro side, the ECB then announced a downward revision of the estimates on the GDP of the Eurozone: the new forecasts speak of a +2,8% in 2022 followed by a +2,1% in both 2023 and 2024. March, with an initial assessment of the impact of the war in Ukraine, the ECB staff had forecast growth of 3,7% of the euro's GDP this year, 2,8% in 2023 and 1,6% in 2024.
As for theinflation, the new ECB projections stand at 6,8% in 2022, 3,5% in 2023 and 2,1% in 2024. Three months ago, forecast inflation was 5,1% in 2022, 2,1 .2023% in 1,9 and 2024% in 2024. In the euro area, "inflation will remain uncomfortably high for some time and is expected to remain above our target" in XNUMX as well, said the president of the ECB, Christine Lagarde. “We will ensure that it returns to our 2% target over the medium term, but upside risks prevail”, mainly related to energy and raw materials.