ECB minutes “basically copy” the Fed: they slow down but don’t stop raising rates
News from the Associated Finance Press, November 25 (Editor Zhao Hao)The European Central Bank announced the minutes of its October monetary policy meeting on Thursday (November 24), local time. At the time, bank officials were concerned that inflation could become entrenched, requiring further interest rate hikes, the minutes showed.
At its October 26-27 meeting, the European Central Bank decided to raise the main refinancing rate, the marginal lending rate and the deposit rate by 75 basis points to 2.00%, 2.25% and 1 respectively, 50%. Since July, interest rates have increased by 200 basis points, setting a record for the fastest rate hike in the bank’s history.
The move had the support of an “overwhelming majority” of politicians, while a “minority” of officials wanted a move smaller than 50 basis points, minutes showed. Some politicians also argued that “even after the monetary policy stance and interest rates normalize to neutral territory,It may need to be tightenedachieve the ECB’s medium-term inflation target of 2%. “
The minutes said that after raising interest rates by 75 basis points in a row,Slowing down is appropriate.However, similar to what the Fed said, the ECBTerminal interest rates will rise significantly. The market believes that the high point of the deposit rate should be 3%, which means that an additional 150 basis points are needed on the current basis.
Speaking of quantitative tightening (QT), politicians have put plans on the agenda to shrink the ECB’s €9 trillion balance sheet. Policymakers also agreed to change the terms and conditions of the targeted long-term refinancing operation (TLTRO) III, a move that is expected to end up raising borrowing costs for eurozone companies.
Economic growth continues to slow down, inflation is difficult to reassure
In terms of inflation, members stressed that the latest inflation data continued to beat expectations, “not at all reassuring”. above 9.9% in September, more than five times the ECB’s 2% target.
European Central Bank executive member and chief economist Lane said the inflation rate was still too high and would remain above 2% for an extended period of time, but long-term inflation expectations remain consistent with the level. by 2%.
Executive member Schnabel stressed that fiscal support has caused medium-term inflation risks and that excessively expansionary fiscal policies must be avoided. So far, many fiscal policies have not been targeted.
In terms of exchange rates, central bank policymakers knew that the euro has depreciated against the US dollar over the past two years, but the trade-weighted exchange rate of the euro has risen slightly since its September meeting. On the commodity side, oil, metal and food prices have not changed much since September and spot natural gas prices have fallen sharply.
Eurozone GDP growth in the second quarter was driven by strong growth in private consumption due to the reopening of contact-intensive services. But the latest indicators point to largely stalled growth in the third quarter. Lane added that economic activity will also slow down over the next two quarters.
