The ECB stands firm and rules out rate hikes

BarcelonaBusinesses and governments have started the year with a clear question for the glass ball about what 2022 should bring them: whether it will be the year that interest rate hikes return. The price of money has been low in the eurozone since 2016, in what was an attempt by the European Central Bank (ECB), then controlled by Mario Draghi, to boost the weak economic recovery after of the trauma of the double crisis that was the Great Recession. But the start of the year, with inflation unleashed, has brought change winds.

Both the ECB and the Fed (US Federal Reserve) have addressed the issue in recent hours. And they have done so in opposite directions. The Frankfurt-based entity has done so through its chief economist, Philip Lane, who has defended the agency’s forecasts that inflation, which has warmed in recent months, will fall to below 2% in in the coming months, which will remove the need to raise rates. “We believe that inflation will fall this year and will be below our 2% target in 2023 and 2024,” Lane said in an interview with The sun 24 hours. His conclusion is clear: “The criteria for raising interest rates are not met.” Underlying these criteria is inflation, which does not take into account energy prices – soaring – or food prices, and which for now does not show any “significant acceleration”.

The ECB’s chief economist says in the interview that there is a “crystal clear difference” between the situation in Europe and that in the United States, where there is more unanimity that inflation will not stabilize around 2% if there is no rate hike. ECB President Christine Lagarde, aware that the decision not to raise interest rates is upsetting the influential German Bundesbank, said on Tuesday that the price increase was being taken “very seriously”: “People can trust that our commitment to the ‘price stability is unbreakable’.

But the ECB looks at inflation from a different perspective than the Fed does. The President of the Federal Reserve Bank of Atlanta, Raphael Bostic, has suggested in various interviews published this Tuesday in the United States that the US central bank may begin to raise interest rates in March, and points out that during 2022 there will be a maximum of three price increases for the money. “There is a risk that inflation is likely to be high over a long period of time and we need to respond in a direct, clear, and aggressive manner,” he said. The central banker has stated that there is a “reasonable possibility” that the first rate hike since the start of the pandemic will take place in March, which would mark, symbolically at least, an official exit from the abrupt crisis. economic generated by covid.

The debate is now more lively than it has been in recent years. Because while it is true that the pandemic crisis ruled out an increase in the price of money during 2020 and 2021, the global shortage and the sharp rise in prices have made rate hikes a real expectation. Proof of this is the stock market: in 2022, CaixaBank, Sabadell, Bankinter, BBVA and Santander are among the stocks that have risen the most, with increases of between 12% and 5%.

It should be remembered that interest rates have a direct impact on the bank’s profit and loss accounts, a hyper-regulated sector where the commodity (money) has a base price set by the ECB. In the economy as a whole, interest rates have an even higher weight: central banks lower the price of money when they think the economy needs a boost – the theory goes that with the cheapest money loans they run more and increase investment and consumption – and they push it up when they think the economy is gaining too much momentum and they think the pace needs to slow down so as not to trigger inflation. The truth is that some voices point out that we are already late: in December inflation reached 5% in the euro area, and in Spain it stood at 6.7% year-on-year, levels that had not been seen in three decades, something which triggers the expectation of rate hikes.

Source: – Portada by

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