ECB, interest rate hike towards an end? What awaits the Eurozone in the coming months

Elizabeth Smith

Could the next interest rate hike by the ECB be the last one? What is known for the moment is that the ECB will raise interest rates again on 27 July. But, the extent of the increase is not yet known.

It also seems that the ECB is not planning any new hikes for August. But, Christine Lagarde warns, the ECB’s work to fight inflation is not yet finished and new hikes could come after the summer.

Rising interest rates

The ECB’s interest rate increase over the past year has set a unique record in the history of the single currency. Never before have interest rates risen so sharply and in such a short period of time.

Just think that, over the past year, interest rates have progressively increased from 0% to over 4% with 0.5 point rises and smaller 0.25% rises in recent months.

These exceptional measures, the ECB points out, are the response to an inflation that is rising at an unprecedented speed.

Suffice it to recall that last autumn, the increase in inflation in Europe reached an all-time high, surpassing the record of the 1980s.

Lagarde’s position

For the Governor of the European Central Bank, the work is not yet done and the ECB will continue to work to contain inflation by increasing the cost of money. Even if the positions against new price increases become more numerous and authoritative.

Lagarde’s and the ECB’s goal is to reduce the rise in inflation and bring inflation to the 2% area. This is a level that, in the current scenario, still seems a long way off. But, given the results achieved in recent months, less unattainable.

At the end of 2022, inflation was growing at a rate of over 10 per cent, now reduced to 5.5 per cent in June. Down more than half a percentage point on the month.

Inflation, the ECB emphasises, is growing more slowly but is still far from decreasing, so the corrective strategy must continue.

Criticism of inflation increases

Among the most critical and authoritative positions towards the ECB’s line is the Governor of Bankitalia Ignazio Visco. Who, now nearing the end of his mandate, recently spoke out on the risks of further interest rate rises, arguing that:

“The interest rate hikes, which have been consistent and continuous, have been aimed at ensuring that the gradual reduction of price dynamics to levels consistent with the 2 per cent target takes place in a sufficiently short timeframe, avoiding the disengagement of medium- to long-term inflation expectations and counteracting the risk of core inflation remaining too high for too long.

Increases at the end of the line?

The ECB’s position does not leave much room for interpretation for the time being. The central bank will at least implement a new tranche of increases in July.

New price increases could instead come in September. But their implementation will largely depend on the inflation trend and on the vote of the Governing Council. Whose position is becoming less and less cohesive, and the doves pointing to a halt in price increases are increasingly numerous.

Read also: China unexpectedly cuts interest rates while everyone raises them: the reasons

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