Despite the uncertainty that existed regarding the decision of the European Central Bank (ECB) on interest rates, the conclusion has been the same as on the nine previous occasions. The entity chaired by Christine Lagarde has once again raised the price of money by a quarter of a point. It is the tenth consecutive increase in the last fifteen months.
Consequently, the interest rate on the main financing operations and the interest rates on the marginal credit facility and the deposit facility will increase to 4.50%, 4.75% and 4.00% respectively. It is the all-time high since the birth of the euro in 1999.
The debate was ongoing within the organization, since both the Governing Council of the ECB and the markets and analysts were very divided regarding the path to take: raise interest rates again, because inflation is still very high; or maintain them, because the economy stagnates.
However, the most important sentence in the statement is this: "on the basis of its current assessment, the Governing Council considers that the ECB's official interest rates have reached levels which, maintained for a sufficiently long period, will contribute substantially to inflation returns to the target in due course".
This appreciation, absent in previous communications, could imply that the central bank considers that the current upward cycle of monetary policy is close to its end. Or that, in any case, a pause will be taken to see the effects of the decisions made so far.
This Monday, the European Commission cut its economic growth forecast for the eurozone this year by three tenths, to 0.8%, mainly due to the slowdown in activity in Germany, which will contract by 0.4% this year, and predicts a few months of slowdown.
The hawks of the ECB Governing Council, the members most in favor of a restrictive policy to fight inflation, had already sent signals that the entity could raise the price of money this Thursday, because prices are still rising a lot: inflation In the general area, the euro remained at 5.3% in August, as in July. Core inflation, inflation that does not take into account energy and food and energy because they are more volatile, moderated to 5.3% (5.5% in July).
To understand this morning's decision, we must look at the ECB's forecasts. The entity has revised the economic growth forecast for the eurozone in 2023 downward by two tenths, to 0.7%, while it has increased its estimate of average inflation for this year by two tenths to 5.6%. This data is key: perhaps hence today's decision to raise rates, even if it is one last time and despite the situation of economic stagflation.
Likewise, the organization maintains the underlying inflation forecast for this year, which does not take into account food or energy, at 5.1% in 2023 but lowers it slightly for the next two. This last aspect suggests that in the medium term the worst of inflation will be behind us. And hence the decision to enter pause mode for the next few months.
