ECB fans talk of September pause after raising rates to 23-year high

ecb-fans-talk-of-september-pause-after-raising-rates-to-23-year-high
ECB fans talk of September pause after raising rates to 23-year high

The European Central Bank (ECB) raised interest rates for the ninth consecutive time on Thursday. However, there is now uncertainty about a rate hike in September due to comments made by ECB President Christine Lagarde. While inflation pressures remain strong, there are concerns about a potential recession. The ECB’s decision to raise rates by 25 basis points brings the deposit rate to 3.75%, the highest level since 2000. Lagarde stated that the next steps are uncertain, but the central bank is determined to address inflation. She also mentioned that all options are still on the table. The ECB’s policy statement emphasized the need for interest rates to be at “sufficiently restrictive levels” for inflation to return to its 2% target. However, the statement no longer includes the requirement for rates to be brought to a level that cuts inflation quickly, suggesting that further rate increases are not guaranteed. Lagarde explained that this change was significant. She stated that there is a possibility of a rate hike or a pause in the future, and policymakers are open-minded and unified. The ECB’s tightening spree is expected to come to an end soon, with discussions about whether one more small rate hike is necessary. The challenge is that inflation is decreasing slowly and may not reach the 2% target until 2025. Underlying price growth remains high, and there are concerns about “second round” effects. The tight labor market increases the risk of wage jumps, which could further fuel inflation. Many investors and analysts were anticipating another rate hike in September, depending on wage data. However, Lagarde’s comments during the press conference were more cautious than expected, leading to a decline in the euro’s value. The slowing economy of the euro zone is also influencing the shift in expectations. While some policymakers believe that further rate hikes are necessary, indicators suggest a continued deterioration in business and consumer sentiment. The manufacturing sector is in a deep recession, and the services sector is showing signs of softening. This weak economic performance, combined with the erosion of real incomes due to inflation, may reduce price pressures and lessen the need for the ECB to take further action. As a result, economists are now focusing on how long rates will remain high rather than expecting another rate hike. Lagarde acknowledged that the end of the ECB’s rate hike run is approaching.

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Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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