ECB minutes “basically copy” the Fed: slow down but will not stop raising interest rates
News from the Associated Finance Press, November 25 (Editor Zhao Hao)On Thursday (November 24), local time, the European Central Bank published the minutes of its October monetary policy meeting. At the time, officials at the bank were concerned that inflation might become stable, and that a further increase in interest rates was needed, the minutes showed.
At the 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 1.50% respectively. Since July, interest rates have been raised by 200 basis points, setting a record for the fastest tightening in the bank’s history.
The action had the support of an “overwhelming majority” of policymakers, while a “minority” of officials wanted a smaller move of 50 basis points, the minutes showed. Some policymakers also said that “even after normalizing the stance of monetary policy and interest rates to neutral territory,Tightening may be requiredto meet the ECB’s medium term inflation target of 2%. “
The minutes said after raising interest rates by 75 basis points in a row,Slowing down is appropriate.However, similar to what the Fed has said, the ECB’sTerminal interest rates will increase significantly. The market believes that the upper point of the deposit rate should be 3%, that is, an additional 150 basis points is needed on the current basis.
Speaking of quantitative tightening (QT), policymakers have put plans to shrink the ECB’s €9 trillion balance sheet on the agenda. Policymakers also agreed to change the terms and conditions of the Targeted Long-Term Refinancing Operation (TLTRO) III, a move expected to eventually raise borrowing costs for eurozone companies.
Economic growth continues to slow, inflation is difficult to quell
In terms of inflation, the members emphasized that the latest inflation data continues to exceed expectations, “not encouraging at all.” Last week, the consumer price index (CPI) in the euro zone rose 10.6% year on year in October, up from September’s 9.9%, more than five times the ECB’s target of 2%.
European Central Bank executive member and chief economist Lane said the inflation rate is still too high and will remain above 2% for a long time, but long-term inflation expectations remain consistent with the level 2 %.
Executive member Schnabel drew attention to the fact that financial support has caused medium-term inflation risks, and excessive expansionary fiscal policies must be avoided. So far, many fiscal policies have not been targeted.
In terms of exchange rates, central bank policymakers have known that the euro has been depreciating against the US dollar over the past two years, but the trade-weighted euro exchange rate has increased slightly since the September meeting. In terms of commodities, oil, metal and food prices have not changed much compared to September, and natural gas prices have fallen sharply.
Eurozone GDP growth in the second quarter was driven by strong growth in private consumption as a result of the reopening of contact-intensive services. But the latest indicators indicate that growth is largely slowing down in the third quarter. Lane added that economic activity would also slow in the next two quarters.