The president Christine Lagard said European Central Bank will increase its interest rates by 0,25 pecentage points at its July monetary policy meeting. Which it will be folowed by a second increase starting from September. It is the first time since 2011.The entity of the raise will depend from the medium-term inflation projections.
“We expect to raise the key ECB interest rates again in September, which will depend on the updated medium-term inflation outlook. Our current assessment brings us to think that a gradual but sustained increase will be appropiated” said Lagarde at the ECB press conference held in Amsterdam.
The effect after ECB conference
After the president’s announcement, italian long-term government bonds return has arisen by 3,58%, while spread jumped to 214 points.
The European Central Bank also had a strong impact on global stocks: Milan has lost 1,5%, while Frankfurt, Amsterdam and Paris are between a drop of one percentage point.
Euro has remained stable above 1,07 against dollar, while fears are focused on government bonds.
The bank’s 25-member monetary policiy said inflation had become a “major challange” and that those forces had “broadened and intensified” in the Euro zone.
Christine Lagarde also said that ECB will first end its bond purchases. The president let it be understood the possibility of a more drastic increase in September is realistic, in case inflation will not be stopped by the contentment measures and return under 2%.
The European Central Bank’s outlook for the medium-term
The prospect ofv rapid increaseas has shocked stock markets, as higher rates would make credit more expensive for enterprises. Lagarde spoke about a gradual and calibrated rise.
The new monetary policy could influence financial insitutions, companies, consumers and governments to borrow the money they need. The problemi is high rates can also have a depressing effect on markets and the european (and global) economic growth.
The bank also increased its inflation forecast for 2024, from 2,1% to 1,9%. This means the ECB sees prices increasing for the following years, and this can be a phenom who could justify the will to raise interest rates.
The rate hikes end a long characterized by low rates which started during financial crisis in 2008.