MILAN – The European Central Bank further raises the wall against rising inflation. At today’s meeting, the board of directors decided to raise interest rates by 75 basis points. A decision in line with market expectations. The principal rate rises to 2%, the deposit rate to 1.5% and the marginal lending rate to 2.25%. In his statement the B.C predicts further increases in interest rates. The Governing Council of the ECB expects to “further raise interest rates to ensure the timely return of inflation to the target of 2% in the medium term”, reads the text. And the president, Cristina Lagardeholds the point even in the face of criticism from many political leaders, Giorgia Meloni including that in his inauguration speech he talked about the “gamble” of tightening the cords as the economy moves into recession. “We have to do what we have to do. A central bank has the mandate of price stability and it has to pursue it using all means”, you answered a question about this criticism. “Obviously – continued Lagarde – it does not mean that we neglect the risk of recession. But we are concerned that low incomes are not only vulnerable to the risk of recession, but also to the reality of inflation”. “I do not want to comment on the political speeches and I abstain – answered the president to a second question on Meloni’s observations – I will only say that as the Central Bank we have the mandate of price stability, and the thing that people are worried about is the inflation”. Lagarde recalled that the decisions of the ECB “take time”, the effects of today’s decisions “will not be seen in the coming weeks. But it is our task”.
Nouen (Lazard): “ECB, the problem is wages. Rates will be higher for longer than in the past”
by Raffaele Ricciardi
The rules of Tltro loans change
The ECB communication also states that the Governing Council “has decided to modify the terms and conditions applied to the third series of targeted longer-term refinancing operations”, the so-called Tltro, and will modify the interest rates applicable to the Tltro3 to starting from 23 November 2022 and to offer banks additional dates for voluntary early repayment of the amounts. The ECB also decided “to set the remuneration of the compulsory reserves held by credit institutions with the Eurosystem at the rate of the ECB on deposits with the central bank, in order to better align this remuneration with the conditions of the money market”.
In her press conference after the announcement of the decision, the president Cristina Lagarde explained that the euro area economy is set to weaken further in the final part of the year and in early 2023. The central banker noted that the labor market “continues to do well” but that the decline in activity could lead to “higher unemployment” in the future. The risks to growth are “clearly to the downside, especially in the short term”, she added: “A significant risk is that the war will drag on” and that “the confidence it could worsen further, as well as supply bottlenecks “.
“Inflation continues to be far too high and will remain above target for an extended period of time,” Lagarde explained. Precisely for this reason we need the tightening of the ECB. Lagarde explained that by significantly raising key interest rates for the third consecutive time, the Central Bank has made considerable progress in abandoning the accommodative stance of monetary policy. “The Governing Council made this decision today and plans to further raise interest rates to ensure the timely return of inflation to the 2% target over the medium term. ‘evolving outlook for inflation and the economy, reflecting an approach whereby rate decisions are defined from time to time at each meeting “. But there is another step to which the markets are watching carefully, the launch of Quantitative tightening or the reduction of the budget: “We will discuss in December the key principles of the reduction of the App portfolio”, namely that of purchases of securities. The issue was discussed in general at the last meeting of the governors where it was decided to address the details of this portfolio reduction at the next meeting in December.
To governments, Lagarde has addressed the now ritual invitation: “They should pursue fiscal policies that demonstrate their commitment to gradually reduce high public debt ratios”. And again: “Structural policies should be designed to increase the growth potential and supply capacity of the euro area and to strengthen its resilience, thus helping to reduce price pressures in the medium term”.
