The European Central Bank seems to have started a turn on Thursday 3 February. After assuring, in December 2021, that a rise in rates would be “very unlikely” in 2022, Christine Lagarde, its president, twice refused to repeat the same remarks during the press conference following the meeting of its board of governors. Instead, she claimed that her remarks in December “were attached to conditions”, in particular the evolution of inflation.
In the eurozone, consumer prices rose 5.1% in January, their highest level since the early 1990s, well above the ECB’s official 2% mandate. They exceed 6% in Spain, 7% in the Netherlands, 8% in Belgium and even 12% in Lithuania. The question “worries everyone around the table” of the Board of Governors, underlines Mme Lagarde. “Inflation could well be much stronger than expected”, she explains.
“The ECB is starting to change its tone, commented Mathieu Savary, of BCA Research, an investment research and advisory group. We are getting closer to a rate hike. » He is betting on a first increase towards the end of the year. Currently, the ECB deposit rate is at -0.5%, unchanged since September 2019.
The specificity of the ECB
The words of M.me Lagarde made the markets react quite strongly. France’s ten-year borrowing rate fell from 0.45% to 0.58%; that of Germany is now clearly above zero, at 0.15%; the Italian rate rose even more, from 1.45% to 1.65%. The era of free loans really seems to be moving away. European stock markets fell in stride (-1.5% for the CAC40), worried about seeing monetary tightening looming.
However, the financial markets seem to be racing, betting on four ECB rate hikes this year. “It seems much too aggressive, as a vision”, believes Mr. Savary. Mme Lagarde has also tempered the enthusiasm. She reiterated that any rate hike would follow a slow sequencing: first the end of debt purchases by the ECB, which will take several months, and only then a rate hike. Clearly, such a gesture remains remote.
Moreover, the change in tone during the press conference does not attenuate the specificity of the ECB among the major central banks. The US Fed announced a rate hike in March. On Thursday, the Bank of England increased its rate for the second time in two months, from 0.25% to 0.5%. In comparison, the ECB has not yet changed anything.
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