ECB to approve first rate hike since 2011 on Thursday

The Council of Government of the European Central Bank (ECB) will proceed on Thursday with the first interest rate hike in the eurozone since July 2011, ending an era of eurozone monetary policy in the face of the harassment of runaway inflation and the uncontrolled fall in the price of the euro against the dollar in recent months, while Italy is going through a new political crisis.

This first hike, which will affect the three rates managed by the central bank (deposit, refinancing and lending), had been telegraphed by the ECB at its previous meeting in June, so barring unexpected surprises, which would have a difficult explanation, it will be of 25 basis points.

Besides confirming the announcement of the first interest rate hike in the euro zone, Thursday’s meeting of the Governing Council will also present another point of great interest, since the details of the anti-fragmentation plan on which it is working could be announced on BCE. From Bank of America, they point out that a rate hike of more than 25 basis points this Thursday “is unlikely, but not unthinkable”, which they also relate to the presentation of the ECB’s new tool to combat fragmentation.

“Given recent developments in inflation and other central banks, a move of 50 basis points cannot be ruled out”, although the US bank preferentially considers that instead of a stronger rise than expected , Lagarde, to subsequent press, “leaves the door wide open to more than 50 basis points in September”.

In this sense, Ulrike Kastens, Economist for Europe at DWS, underlines that the tightening of its monetary policy that the ECB could announce will be all the more powerful as the program to fight against the fragmentation of the euro zone will prove to be powerful. .

“It has fueled high expectations in the market, which must now be met,” warns the economist, who does not expect said program to be time-limited and sees it as likely that any asset purchases will be sterilized to prevent further market expansion. ECB balance sheet. , although he is betting that he will only be able to buy bonds from specific countries if they meet certain tax conditions.

“However, one cannot expect strict conditions and rules as in the case of the OMT (limited purchases of public debt), but the central bank could be satisfied with declarations of intent”, says Kastens, warning that this could make the new program legally questionable. medium term.

For their part, Bank of America analysts believe it is likely that the ECB will make at least a partial announcement on the new tool, with the possibility that some details will be released later, although they warn that conditionality and the potential triggers of the new instrument, by leaving too much room for subjective interpretation, will make it less effective.

“Unfortunately for the ECB, the market could try to test this new tool sooner than we thought a few days ago. Political events in Italy are not helping in this regard”, they point out, because, in the event from total crisis, crisis in its own right, reinvestments can help for a while, but without the support of the new tool, they would ultimately not be enough.

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