This week, the European Central Bank (ECB) intends to raise the rate of interest at the meeting in July. The central bank also downgraded its progress anticipation..
The Governing Council of the Central Bank has every intention of rising by the Twenty Five basis points key of interest rates at this meeting.
Furthermore, the European Central Bank forecast a further increase at its meeting in September, but the level of that hike will be based on the outcome of their current considerations of the short-term trajectory outlook of inflation for the medium-term.
For now, the main operations of refinancing for the interest rates, deposit facility, as well as marginal lending rate keep the same at 0.00%, similarly 0.25%, on the same trend-0.50%.
According to the central bank’s statement, “According to the statement of Bank, depending on its present speculations, beyond September, the Governing Council forecast that rate of interest will need to go up slowly but steadily over time.”
Annual inflation of consumer prices across the euro area reached 8.1% in May. Despite that, the central bank has previously hinted that the first rise in the inflation rate will happen after the end of its asset purchase program on July 1.
Unsurprisingly, markets were waiting for this meeting for a long time, the Governing Council’s first away from Frankfurt, Germany, the start of the Covid-19 pandemic, for an indication of how fast the rate of interest will change in the near future.
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European Central Bank and major challenges
The situation of Europe is in chaos. It is worth noting that policymakers are facing the results of putting a stop to inflation without making the economic recession even worse due to the Ukraine war, in addition to the sanctions and embargo imposed by the EU against Russia, formerly a key factor for the imports of energy for the European bloc.
The European Central Bank also lowered its predictions for economic growth and revised its forecasts for inflation. As a result, inflation on annual basis is being forecast to reach 6.9% in 2022, then reduce to 3.4% for 2023 as well as 2.0% for 2024. As a reminder, this indicates a significant increase from the ECB’s March forecasting of 5.2% for 2022, 2.0% for 2023, as well as 1.8% for 2024.
Its growth anticipation was scaled back to 2.8% for 2022 similarly2.2% for 2023 and amended moderately to 2.1% for 2024. This contrasts with projections in the meeting of March of the bank of central 3.7% for 2022, 2.9% for 2023, similarly 1.7% for 2024.
The European Central Bank’s Governing Council’s position is quite interesting. The council said it’s ready to make adjustments to any policy instruments necessary to stabilize inflation for the medium-term towards its 2% target.
Apart from the European Central Bank, the U.S. Federal Reserve is also trying to cope with challenges. It began raising rates back in March and applied a hike of a fifty basis point in May, its largest in over 20 years.
For the last four meetings, the Bank of England increased rates until they reached the highest they’ve been in 13 years