The ECB takes the first pause of the new cycle and leaves interest rates at maximums

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The pause, announced already in September, has been implemented. The European Central Bank (ECB) has decided not to move and not to touch the three reference rates on which the Eurozone economy is based. The refinancing rate will remain, at least until December, at its 2001 highs of 4.5%, the deposit facility, where appropriate at historical levels, at 4%, and the marginal credit facility at 4.75. %. It is time to let the most restrictive monetary policy in memory in the history of the euro zone do its job and continue to drain through the different layers of the economy to achieve the only objective that Christine Lagarde has on the table: return inflation to at rates of 2% in the medium term.

The organization insists in its statement today in the same words as always… “inflation will remain high for too long” and adds, this time, that “price pressure remains strong.” However, it does introduce a nuance and it is that of the CPI data from last September, “with a notable drop”, he says, due not only to the base effect compared to much higher figures twelve months ago but also because the measures are beginning to take effect. Likewise, the ECB recognizes that “the impact” of the rate increase continues to be “strongly transmitted to financing conditions” and this is causing the fall in credit demand to continue to be increasingly relevant.

The meeting held today is the penultimate of this 2023 (in which, by the way, Spain has not voted, within the rotating system with which the Governing Council of the organization works) and the first of the new cycle that opened last year. Since July 2022, the ECB has not missed a single occasion without raising the reference rates in the Eurozone with the aim of cool the economy enough to contain the highest inflation in decades in living memory and which, during the summer, has already shown signs of containment. In September the Eurozone CPI fell to 4.3%, a two-year low, and the underlying rate to 4.5% compared to 5.3% in August. It remains to be seen if the recent conflict in the Middle East between Israel and Gaza has any implications for energy prices. (mainly oil and gas) and, therefore, the ECB is forced to revise its estimates upwards. The organization’s latest forecasts, made in September, have already increased the inflation rate expected for this year and for 2024, to 5.6% and 3.2%, respectively, and lowered it for 2025, to 2, 1%, still above the target.

The German manager Allianz GI recalls that “the ECB’s latest inflation forecasts, communicated at its meeting on September 14, placed a barrel of oil at 82.7 dollars in 2024 and 77.9 in 2025, hypotheses that now seem very modest. “.

Nomura experts believe that Lagarde will give few clues because “cannot claim victory yet against inflation, at least until March 2024”. They do not expect the president to announce any additional measures regarding the reduction of the ECB’s balance beyond “they have been able to start discussing it now” and they are betting that questions will abound about “the prices of raw materials” in the face of the conflict between Israel and Gaza. .

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