One of the main problems for the European Central Bank is that the inflation rate isn’t calming down as expected
The European Central Bank is all set to raise the interest rates by another quarter-point making this the ninth rate hike in a row. Investors and policyholders ponder alike if this could be the final hike in a series of yearlong hikes. The central banks across have been fighting the record surge in prices and the European Central Bank had lifted the borrowing costs by 4 percentage points since last July.
ECB is the central bank for 20 countries that use the Euro and states that it is likely to drop the habit of indicating its next move and pledges a data-replacement approach instead. This, however, also left investors wondering if another rate hike is prone to happen in September or whether this is the last hike in European Central Bank’s fastest tightening spree. The end of the rate hike is around the corner and there are discussions regarding one more small move before the rates are kept steady for what some policymakers think will be a long time.
The deposit rate is advanced to 3.75%. One of the main problems for the European Central Bank is that the inflation rate isn’t calming down as expected. It could take until 2025 to fall back to 2% as a price surge driven by energy has affected the global economy. The overall inflation has considerably reduced since October, but the underlying price growth is near its peak and might have further increased this month.
The possibility of another hike is dimming as ECB officials bring about doubts about a September move. Some economists predicted a 4% peak in the deposit rate, even though they are not sure if the policymakers will stick long enough, reports Bloomberg.
According to the European Central Bank’s June statement, the rates “will be brought to levels” that are adequately restrictive would have to be modified so as not to signal further action
The economic outlook will play an important role and according to recent data, the condition seems to be worsening. The next anticipation would probably be when the European Central Bank could start thinking about lowering its interest rates again. Experts estimate that ECB would reduce the gap between the deposit rate and the rate at which banks can borrow money for a period of seven days.
The last-mentioned facility hasn’t been used much because of abundant liquidity but as the lenders are returning to cheap-long term funding, the officials might try to reduce the cost of accessing it. This could be a hard task as any move could provide intentions about the direction the ECB is trying to avoid, reports Bloomberg.
When we look at Germany, the country is struggling especially in the manufacturing sector as it fights to exit the recession. The labour market also shows little sign of relaxing. The inflation levels that the officials are looking into remain on the higher side reaching 5.5% in June. this rate is above the set 2% target.
The governing council is currently in the process of selecting a candidate to replace Andrea Enria as head of the ECB’s bank’s supervision division when he steps down later this year. The other potential contenders for the position are Claudia Buch, Bundesbank Vice President, and Bank of Spain Deputy Governor Margarita Delgado.
Although ECB had made an announcement that the decision would be made in Autumn, there are chances that the decision would be made even this week. The nominated candidate will however need to get approval from the European Parliament and receive confirmation from the governments of the European Union before a final decision is made