Part of the ECB council defended in July raising rates by only 0.25 points

While part of the investors and the market considered the 0.

25 August 2022 Thursday 19:36
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Part of the ECB council defended in July raising rates by only 0.25 points

While part of the investors and the market considered the 0.5-point rate hike by the European Central Bank (ECB) last July to be insufficient, yesterday it transpired that part of the members of the governing council defended that the rise should be lower , of only 0.25 points.

The increase of 50 basis points approved in July was decided with the support of a "large number" of members, while some preferred a more modest increase, considering that surprising with the decision would add uncertainty to the market. In the previous meeting in June it had been announced that the increases would be gradual, of 0.25 points.

Last month, the president of the ECB, Christine Lagarde, already confirmed in her appearance before the press immediately after the meeting of the governing body of the entity, made up of the six executives of the central bank and the governors of the national central banks, that the rate hike of 50 basis points had been adopted by consensus, the formula used to communicate the decisions made without unanimity, only by majority.

The review of the meeting held on July 21 reveals that "some members were in favor of increasing the ECB's official interest rates by 25 basis points, since this was the planned measure communicated at the June meeting and would maintain the coherence with the previous communication of the Governing Council”.

In this sense, the minority of advisers in favor of a more modest rise in interest rates warned that, given the risks of a recession ahead, an increase of 25 basis points was more in line with a gradual normalization of monetary policy and it was also compatible with inflation returning to the 2% target in the medium term, once temporary shocks dissipated.

“Furthermore, concerns were raised that if the Governing Council deviated from its previous guidance and surprised markets with a larger-than-expected increase, this would add to prevailing market uncertainties. meeting.

However, despite such considerations, the majority of the Governing Council determined that it was necessary to demonstrate the willingness to respond when changes in the outlook occur, in addition to considering that, despite constituting a higher than expected increase, the increase in 50 basis points provided more clarity to market participants in a highly uncertain environment.

Given the rise in inflation in the euro zone, it is expected that the Governing Council of the ECB, which will meet on September 8, will raise rates again by another 50 basis points.



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