ECB Flags Interest Rate Normalization to Counter Above-Target Inflation
June 10, 2022
Yesterday’s scheduled meeting of the European Central Bank’s Governing Council made news, pre-announcing a likely 25-basis point rise in policy interest rates (currently a zero percent refinancing rate flanked by a negative 0.5% deposit rate and a 0.25% marginal lending facility rate). In addition, a released statement flagged a likely rate hike of more than 25 basis points at September’s policy review, and additional increases at ensuing reviews.
High inflation is a major challenge for all of us. The Governing Council will make sure that inflation returns to its 2% target over the medium term. In May inflation again rose significantly, mainly because of surging energy and food prices, including due to the impact of the war. But inflation pressures have broadened and intensified, with prices for many goods and services increasing strongly.
The ECB asset purchase program will end next month, and officials released revised CPI and GDP forecasts, which is done quarterly. Projected CPI inflation was bumped up to 6.8% for 2022 from estimates of 5.1%, 3.2% and 1.7% made last March, December and September. Core CPI of 2.3% on average in 2024 now is expected to exceed target throughout the forecast period. Officials reduced their forecast of GDP growth this year to 2.8% from estimates of 3.7% made in March and 4.2% assumed last December. A recession is not predicted.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: European Central Bank
ShareThis
