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ECB follows trend of US an UK with 50 bps rate hike

by December 15, 2022
by December 15, 2022 0 comment
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The European Central Bank (ECB) has announced a hike of 50 bps (0.5%) Thursday. The move is largely in line with expectations, while it warned there are further moves on the horizon.

“Interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation,” the ECB said. “Inflation remains far too high.”

The ECB’s deposit rate is now between 1.5% and 2%, the highest since the crash of 2008. Whenever the phrase “since 2008” is used, it’s never good news, is it?

ECB follows US and UK

It follows two consecutive hikes of 75 bps, with Europe following the path set earlier this week by the US and UK, both of whom did the same. The Swiss National Bank also hiked by half a percent.

The smaller hikes reflect hope that inflation has peaked. Eurozone inflation dropped to 10% in November. However, given it was at a record high of 10.6% the previous month, it’s all relative. Nonetheless, the latest readings can be seen as more optimistic than what was anticipated.

The US and UK also saw positive inflation readings this week. CPI stateside came in at 7.1% (down from 7.7% the previous month), while the UK reading landed at 10.7% (down from 11.1% in October).

The ECB, like the other states, has seen enough to justify lowering the pace of hikes to 50 bps. However, the panacea of the targeted 2% inflation remains a long way off.

The big question is how long these high rates can persist.

Recession on the way?

The past few weeks have turned the heat up on the eurozone. Ironically, this has come from a lack of literal heat – the falling temperatures are kicking up energy bills amid the energy crisis sparked by Russia’s war in Ukraine.

The winter had been uncharacteristically mild until recently, but that has begun to flip. ECB President Christine Lagarde, who had been stout in the face of recessionary threat, even said last month that “the risk of recession has increased”.

All in all, the ECB continues to toe the line between inflation and recession as best as it can. But its slower hikes than other jurisdictions betray the fact its hands are somewhat tied here. The looming fear is that it may not be possible to get through this without a recession.

The post <strong>ECB follows trend of US an UK with 50 bps rate hike</strong> appeared first on Invezz.

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