ECB: Interest rates increase by 75 bps, inflation seen as 2.3% in 2024

The European Central Bank raised the deposit rate to 0.75% and expects to raise interest rates further to reduce demand. The reason for this is that inflation is very high and likely to remain above the target for a long time. Most economists had predicted an increase of 75 basis points. The ECB has increased interest rates by 75 bps for the first time since its establishment.

ECB inflation

-8.1% in 2022 (previously 6.8%)

-5.5% in 2023 (previously 3.5%)

-2.3% (previously 2.1%) in 2024.

The ECB sees GDP at:

-3.1% in 2022 (previously 2.8%)

-0.9% in 2023 (previously 2.1%)

-1.9% in 2024 (previously 2.1%)

-The policy path will be regularly re-evaluated in the light of incoming information and the changing inflation outlook.

-The ECB will continue to exercise flexibility in reinvesting in maturing redemptions in the PEPP portfolio.

After the rate hike, which was made within the fully expected and priced scenario for the Central Bank, the main factor is whether the ECB’s proactive hawkish stance against inflation continues. Of course, the Fed plays the leading role in terms of the main central banks, but due to the aggressive interest rate increase, all borrowing costs are affected upwards. This, of course, will affect countries like Italy, which has a high debt burden, more deeply when we evaluate it in terms of spread, but on the other hand, it seems that the increase in yields will be triggered in general, since the degree of impact of the energy crisis comes into play rather than interest rates. Since this situation leads the ECB to increase interest rates to reduce demand, we can also consider it as an acute tightening that will set the recession earlier. Of course, the dynamics that play a role in the energy crisis will again determine the situation.

The Eurozone seems to have not benefited from the temporary impact of low commodity prices, as CPI inflation reached a new record high of 9.1% year-on-year in August. The problems of Russia and Ukraine show that the energy and food crisis is not resolved, and Europe, which is very dependent on these resources, will face an open-ended situation in terms of inflation unless it can create a supply source that will exceed the demand and reduce costs. A series of hawkish comments continue to come, arguing that central banks should tighten monetary policy despite lower growth and higher unemployment risks. In this, too, the basic perspective is that the entrenched inflation is seen as a greater danger.

Kaynak: Tera Yatırım-Enver Erkan
Hibya Haber Ajansı