ECB: what to make of the interest rate hike?
The ECB has followed the lead of the US Federal Reserve and the Bank of England and raised its key interest rate by another 0.5 percentage points in a bid to curb inflation. The hike was lower than the previous one but ECB chief Christine Lagarde announced further increases for next year. The inflation rate in the Eurozone dropped slightly in November from 10.6 to 10 percent.
Stricter than the Commission
Corriere della Sera sums up:
“With the pandemic, a structural change has taken place in the Eurozone that is only now becoming apparent. During the long phase of the euro crisis, the Commission and the Council of Finance Ministers were more restrictive than necessary in budgetary policy, and the ECB (partly) compensated for this with an expansionary course. For some time now, however, the opposite has been the case. ... Not for the first time since Christine Lagarde became president, the ECB has surprised the markets with a restrictive course, while the politicians in Brussels are less rigid with regard to debt and deficits. ... The change of course is based on facts. A year ago no one expected inflation to climb to more than ten percent in autumn 2022.”
The Eurzone's dilemma
Maintaining a restrictive monetary policy is easier for the monetary watchdogs of the US and Switzerland than for the euro countries, explains Corriere del Ticino:
“Average inflation is at 10 percent, with peaks close to 20 percent, and growth prospects differ among the various economies of the continent sinces they are exposed to different degrees to the consequences of the war in Ukraine and thus to Putin's blackmail using Russian gas. It is therefore more difficult for the Governing Council to maintain a monetary policy that is compatible with both the growth objectives of the various countries and the control of inflation.”
No big relief for investors
The financial centres are not yet out of the woods, La Libre Belgique fears:
“Sighs of relief could be heard in the trading rooms: the tightening of monetary policy to curb inflation was less brutal than the previous ones. Yet the financial markets dropped, with shares leading the way. Investors have perhaps been a little too quick to anticipate a return to normal share price dynamics. ... The liquidity that has flooded the drip-fed economies has fuelled another kind of inflation that affects financial assets such as tech stocks, cryptocurrencies and real estate. And these bubbles are shrinking, promising even more difficult episodes for investors.”