Analysts argued that despite the European Central Bank (ECB) having started “too late”, it is now communicating clearly and at least anticipating two key rate hikes by the end of the year, in a “conversation with Lusa” this Tuesday.
ECB President Christine Lagarde said this on Tuesday the nature of inflation in the eurozone is changing and it is unlikely that the central bank will be able to declare that the maximum policy rate has been reached in the foreseeable future.
In Sintra, at the opening of the Central Bank Forum (ECB), Christine Lagarde reaffirmed that inflation in the Eurozone is too high and will remain so for too long, with the central bank’s commitment to meet its 2% inflation target. retrieve remains.
The President of the ECB reaffirmed what had been signaled at the last meeting of the Board of Governors this month: “Unless there is a substantial change in the inflation outlook”, the central bank will continue with “the rate hikes in July”.
Responding to Lusa, XTB analysts Henrique Tomé and Vítor Madeira underlined that in recent months there has been a fall in inflation and an “economic slowdown” in countries like Germany or Francewho can prove that the The inflation slowdown is expected to continue.
However, as they argued, the rate of decline could jeopardize the 2% target by the end of 2024.
While the impact of the interest rate hike on the industrial sector has already been noted, the services sector remains “more resilient, which makes it difficult to counter price increases”.
This situation is proving to be “a dilemma for the ECB as it may have to sacrifice the economy to bring inflation under control”, if current conditions persist.
Henrique Tomé and Vítor Madeira thus foresee that in order to keep inflation under control, the ECB will have to raise interest rates “at least twice more this year, which is likely to hurt economic activity”.
On the other hand, they recalled that other central banks in developed countries only started to call a halt to rate hikes once they were above 5%.
“The behavior of the Euribor should continue to rise in line with what has happened until the closing rate is reached. In the case of households, the impact of these measures discourages debt burden, slows down consumption via household disposable income with the most debt and could still lead to an increase in unemployment,” they added.
ActivTrades analyst Mário Martins said he agrees with recent statements by the ECB president, noting that monetary policy in the eurozone was already expected to “remain restrictive for an extended period of time”, taking into account the fact that, in addition to reducing inflation, the goal is also to reduce price increases to 2%.
The ECB “started late as usual, but at the moment it is doing what it has to do and communicating clearly what to expect for the rest of the year,” he stressed.
Regarding the impact of these decisions, Mário Martins stressed that interest rates were already expected to continue rising.
So “there must be ‘pain’ for consumers to reduce their appetite, in the sense of finally regulating the imbalances that were caused by the pandemic and the war”.
The Euribor should continue to rise, “albeit more gradually”.
Christine Lagarde explained in Sintra this Tuesday that there are two sources of uncertainty that affect the “level” and “duration” of reference rates.
On the one hand the uncertainty about continued inflation it means that the level at which rates reach a maximum depends on the situation.
“It’s going to depend on how the economy and some of the forces I’ve described evolve over time. Plus, it’s going to need constant reassessment over time,” he said.
Similar, considers it “unlikely that the central bank will be able to confidently declare that the maximum rates have been reached in the foreseeable future”.
Source: DN
