by Elena Comelli
Too early to stop. The European Central Bank, in line with expectations, raised interest rates by 25 basis points, bringing the reference rate to 4% and the rate on bank deposits with the ECB to 3.25%. The ECB itself indicates in its bulletin that the market measures of one-year inflation expectations point to 2.2%: real rates are therefore close to 1.8%. The new increase was considered necessary because “inflation has fallen but it is estimated that it will remain too high for too long”, underlined the president Christine Lagarde at the end of the Governing Council.
The Governing Council “is determined to ensure the timely return of inflation to the 2% objective over the medium term”, specified Lagarde. The new macroeconomic projections indicate an average inflation slightly up to 5.4% for the end of the year (from 5.3% indicated in March), 3% for the end of 2024 (from 2.9%) and 2.2% (unchanged) for the end of 2025. Growth projections have been scaled down in parallel: 0.9% GDP growth this year (from 1% in March), 1.5% next (from 1.6%) , and 1.6% (unchanged) in 2025. In the Eurozone, “the outlook for economic growth and inflation remains very uncertain,” explained Lagarde. “Economic growth is likely to remain weak in the near term, but to strengthen over the course of the year thanks to declining inflation,” the president added. The words of the Deputy Prime Minister Matteo Salvini seem to refer to this risk, who, speaking at the Confcooperative assembly, asked himself: “The ECB realizes that with its policy it may reduce inflation by zero point, but it is damaging families and businesses?”. And he added: “I would like economic and infrastructure policy not to follow only algorithms”. It is clear that the rate hike mainly affects ultra-indebted countries such as Italy, whose public debt continues to rise: in April it increased again by 21.8 billion compared to the previous month, reaching a record level of 2811, 6 billion, Bank of Italy announced yesterday.
However, the tightening of the cost of money does not end here. “Have we finished our journey? No, we are not at our destination. Do we have any other way to go? Yes”, said President Lagarde.