The ECB has decided to raise interest rates by half a percentage point, bringing the rate on main refinancing to 3%, that on deposits to 2.50%, and that on marginal loans to 3.25%. And, given the pressure of inflation, the Governing Council intends raise rates another 50 basis points at the next meeting in March. Lagarde does not rule out further increases after March.
“No, no, no”: this is how he replies on the hypothesis that, after a third consecutive rise in interest rates anticipated for the month of March, the European Central Bank may have finished tightening the cost of money.
Economic activity in the euro area, despite growth of 0.1% in the fourth quarter of 2022, “has slowed significantly and we expect it to remain weak in the near term,” said Lagarde, indicating amid political uncertainty, war and high inflation factors that will continue to hold back growth, before a subsequent recovery.
The risks to the inflation scenario have become “balanced,” said Lagarde, abandoning the expression, used until the December Governing Council, that these risks were “to the upside”. The ECB has also revised the risks to economic growth, bringing them to “balanced” from “on the downside”.
Government aid to protect the economy from energy price increases should be “targeted and provide incentives to consume less energy”. And “now that the energy crisis is less acute, it is important to start and reduce the measures” of support, because the measures that “do not respect these principles, create pressure on inflation and this requires a stronger monetary policy response”.
Lagarde explained that after March “we will have to evaluate” the economic data. On the next half-point hike in March, the ECB president explained that “it is what we intend to do, it is a strong word even if not an irrevocable or absolute commitment”, but “no one must doubt” the ECB’s determination to restore the inflation at 2%.
THE MARKETS
Click of the Btp after the monetary policy decisions of the ECB, which raised rates by 50 basis points and announced a similar hike in March. The Italian 10-year yield slipped to 4.04%, down 24 basis points, on the lows of the day, while the spread with the Bund dropped 10 basis points, to 189 points.
They improve European Stock Exchanges: Piazza Affari rises by 1.3%, Paris by 0.6%, London by 0.85%, Madrid by 1.9% and Frankfurt by 1.3%. The euro held back slightly, returning below 1.1 with the dollar, at 1.098, down by 0.1%.
