The Monetary Institute noted on Thursday 0.5 point key rates – a first since 2011 -, and has unveiled a new instrument intended to avoid a new debt crisis in the euro zone.
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Can the European Central Bank (ECB) fight inflation, while flying to the aid of Rome? While the resignation of the Italian Prime Minister Mario Draghi risks plunging the peninsula – and the euro zone – in a new crisis, the question was, Thursday, July 21, on everyone’s lips of European observers. At the end of the meeting of its governors, the Frankfurt Institute responded in part by revealing two important decisions. “It’s a historic day,” said its president, Christine Lagarde, during her press conference.
In fact, the ECB has noted its key rates of 0.5 point – a higher increase than expected and, above all, the first since 2011. Its main interest rate thus goes from 0 % to 0.5 % and its deposit rate, applied to certain liquidity that banks do not distribute in credit, from – 0.5 % to 0 %. It thus closes the era of negative rates, which began in 2014 to relaunch prices and the European economy after the debt crisis of 2011-2012.
Galloping inflation of the last months, intensified by the war in Ukraine, the shortages in series and the outbreak of the energy courses has suddenly changed the situation. The price index thus culminated at 8.6 % in June in the euro zone and “will remain at an undesirable high level for a certain time”, recognized Christine Lagarde. This justifies that the ECB is raising its rates at a rate greater than 0.25 points that it had announced in June. “She may think that the shooting window for next rate hikes will close quickly,” says Carsten Brzeski, economist at ING.
Possible, because “the economic horizon darkens”, recognized the institution. “The euro zone is probably already in recession”, even judge Ludovic Subran, chief economist of the Allianz group. It will therefore be more difficult to justify, in September and October, a strong increase in rates likely to give an brake on growth already undermined.
limited communication
In order not to bond hands in advance and keep room for maneuver, the ECB has decided not to communicate too much upstream on its future decisions – what is called the Forward Guidance -, as it has been doing it for several years. From now on, it will be pronounced at each meeting, depending on the economic data available. It looks like nothing, but there too, it is a change of era. “It is not a bad thing, when no one has the slightest idea of what will be inflation in six months,” commented on Twitter Frederik Ducrozet, responsible for economic research at Pictet WM, in the wake of Reunion.
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