Will the ECB Refrain From Hectic Rate Hikes, After the Difficult Position of the BOE?
Skerdian Meta • 2 min read
Inflation has been increasing for two years, despite the pandemic restrictions and lockdowns which hurt the consumer and the global economy. A year ago US CPI (consume price index) inflation moved above 5% and instead of slowing down, it has been accelerating in recent months after the price surge since March. Central banks have pressed the panic button and have started increasing interest rates pretty fast.
The reserve bank of new Zealand (RBNZ) and Bank of England (BOE) have been on the forefront of hiking rates, both having hiked 5 times since they started doing so late last year, while the European Central Bank hasn’t started yet. Although they are planning to begin in July. But, from what we are seeing, these hikes are not having any impact on cooling off inflation whatsoever which has only been picking up pace in the last two months.
Instead, together with surging prices, these hikes are helping in hurting the consumer and eventually the economy. So, there have been some contradicting comments from the ECB, which should be very wary about hiking rates right now.
Remarks by ECB policymaker, Robert Holzmann
- A 50 bps rate hike in July would be appropriate
- A strict forward guidance no longer makes sense
- Ending the year with rates in positive territory is extremely important
Well, his view is certainly not what Villeroy depicted out yesterday. And from Lagarde’s demeanour earlier today, the base case remains for the ECB to move more gradually and stick with a 25 bps rate hike in July – at least for now.