Since Christine Lagarde decided to raise interest rates in July 2022 after a decade frozen, it is the first time that there are serious doubts about the decision that the European Central Bank (ECB) will finally adopt in the Governing Council that will conclude today. Until last July 27, The central bank has carried out the fastest and steepest escalation of rate increases in memory in the short history of the institution. On nine occasions, Lagarde has communicated to the market a new increase in reference rates in Europe to try to stop the runaway inflation, above 5% in the euro zone, and, above all, very far from the sole mandate of the ECB: a CPI at 2%.
In the last few hours the balance that gauges the pulse of the monetary policy of the Eurozone has clearly tilted towards the side. hawkish (more aggressive) again. Ten days ago, the market’s chances of a new rise in September were 20% and the first pause in this race waged by central banks around the world to contain prices was already on the horizon. But yesterday those probabilities increased to 70%, according to data collected by the agency Bloombergafter part of the ECB’s new macro forecast table was leaked, which are not positive in terms of inflation.
As published Reuters This week the Central Bank will increase its CPI forecast in the euro zone beyond 3%, compared to the current level of 3%, for 2024 and it is news that inevitably reinforces the idea of greater monetary tightening. Exceptional policies for a situation never seen before. Hence the criticism that the ECB has constantly received. In its entire history it has never faced such a high inflation scenario and this suggests that, progressively, Lagarde will gradually introduce in her speech the idea of a new inflation target, more realistic and closer to 3% for the medium term. .
The ECB will also review its forecasts for the European economy. The latest data from June predicts a growth of 0.9% of the community GDP, 1.5% in 2024 and another 1.6% in 2025. In any case, the Central Bank was confident that the Eurozone will avoid the technical recession of beginning of the year.
Till the date his crusade against such high prices has had a relative impact, falling from rates of 10% seen at the end of 2022 to 5.3% in July. But from then on the road is much rockier, according to analysts, since the adjustment will require more time than desired. The ECB, which repeats its data-dependency Every time it has the opportunity, it is waiting to see a real cooling of the European economy, despite the collapse in the granting of loans (due to higher financing costs) and the rise in mortgage prices.