The European Central Bank decided to raise interest rates by a quarter of a percentage point, bringing the rate on main refinancing to 3.75%, that on deposits at 3.25%and that on marginal loans at 4%: therefore the tightening slows down – the previous increase was 0.50 percentage points – but at the same time the Central Bank has announced that from July it “expects” that the reinvestments of maturing securities purchased under quantitative easing (the App Program) are discontinued.
Until June they will be equal to 15 billion a month. A total quantitative tightening is then announced, estimated at 25 billion per month, a pace that would bring that portfolio to zero in 12-15 years.
Lagarde doesn’t foresee any short breaks
Further rate hikes may also be needed. “We will not take a break, it is very clear,” the president explained at the press conference Christine Lagarde . “We still have a long way to go”, he added, “The future decisions of the Governing Council – had explained the official statement published at the end of the meeting – will ensure that monetary policy rates will be brought to sufficiently restrictive levels to obtain a timely return of the ‘inflation to the medium-term objective of 2% and will be maintained at those levels as long as necessary.’
The effect of the rate hikes decided so far is not sufficient: “they are being transmitted forcefully – explains the note – to the monetary and financing conditions of the euro area” but “the delays and the strength of the transmission to the real economy remain uncertain »; and it is only the effects on the real economy, Lagarde recalled, that can really bring inflation down.
Inflation expectations still high
We therefore need to do more. “The inflation prospects – explained Lagarde – are too high and for too long a time”: an assessment that was shared, he explained, by the entire board. All members of the board agreed on the need to raise rates, although some governors have pushed for a hike of 50 basis points, not 25 basis points. Even in the future, every decision will continue to be taken with a “meeting after meeting” approach, based on incoming data.