ECB leaves rates firm, first hike in July

As expected, at the June meeting the Governing Council of the ECB held – for the last time – the rates fixed but also, on the basis of the new macroeconomic estimates, “decided to take further steps in the normalization of its monetary policy”, words which indicate the expected rise in the June meeting, after the formal conclusion of the last purchase program (the App) starting from July 1st. Obviously, “high inflation” which “is an important challenge for all of us” pushes the Eurotower towards the first rise. The new estimates predict annual inflation of 6.8% in 2022, before a sharp decline to 3.5% in 2023 and 2.1% in 2024, higher than the March projections. “This means – it is emphasized – that nominal inflation at the end of the projection horizon should be slightly above the Governing Council’s target. Inflation net of energy and food should reach an average of 3.3% in 2022, 2.8% in 2023 and 2.3% in 2024, also above the March projections. Russia versus Ukraine “- is now forecast at 2.8% in 2022, 2.1% in 2023 and 2.1% in 2024. Compared to the March projections, the prospects for real GDP have been revised in significantly downwards for 2022 and 2023, while it was revised upwards for 2024. upside, it is good practice, followed by most central banks, begins re with a gradual increase, consistent but not excessive, which indicates a path “, explained the president of the ECB Christine Lagarde, adding that after the first rise” we also want to observe how the markets will operate “. in the Pepp and App programs we will discuss it later, today in the Council we have not addressed “this issue. Moreover, he concludes, in the Council “some are interested not only in the flexibility of reinvestments over times and jurisdictions but also in how we can support the financing of needs for interventions against climate change”. “Monetary policy is helping to protect” economies of the eurozone “from the effects of shocks” such as the war in Ukraine, Lagarde said in the introductory statement at the press conference following the meeting of the Governing Council. However, he added, “the risks remain on the upside” especially if “inflation expectations were to settle at levels higher” than desired. “We want to be sure that there is no fragmentation” of the markets that prevents “the correct transmission of ours. monetary policy “, underlined the president of the ECB. For this purpose, he explained, not only “we have tools already existing and used in the past such as the possibility of reinvesting the purchased securities, with total flexibility, but if necessary we could also deploy new tools that were available”. “Although governments have intervened and helped slow energy inflation, energy prices are 39.2 percent above levels a year ago. Market-based indicators suggest global energy prices will remain high in the short term , but then they will decrease to some extent “, Lagarde said.” We do not expect an immediate effect on inflation of the first rate hike; we cannot expect consequences as early as July 22, but these are decisions that have an impact of long term “, he explained, recalling that” financing costs have already increased considerably and the signal we are giving today will continue to have an effect on this “process. The rate hike expected in July “is not a step forward but a path” in a “journey”: “We want to indicate to those who create the expectations of the markets that we are determined to reach our target of 2%” of inflation in the medium term.