Heels|European central bankers have gathered in Sintra, Portugal for the traditional summer seminar. Still, two interest rate cuts are still expected this year, which means a 0.50 percentage point cut to the ECB’s deposit rate.
European the governor of the central bank (EKP). Christine Lagarde warned on Monday in Portugal’s Sintra that inflation worries are not over yet.
“The European Central Bank does not yet have sufficient evidence that inflationary threats have receded,” Lagarde said on Monday, news agency Bloomberg’s by.
Lagarde opened the annual seminar for central bankers in Sintra. The statements were interpreted to mean that the central bank is not going to lower interest rates, at least not yet at its July meeting.
ECB lowered its key policy rate, i.e. the banks’ deposit rate, by 0.25 percentage points to 3.75 percent in June. The interest rate was last raised to exactly four percent last September.
Finland The bank’s CEO Olli Rehn evaluate last week in an interview with Bloomberg that the ECB will cut its key interest rates two more times this year, which is in line with the market’s general expectation.
Monday in his opening speech Lagarde stated that the ECB was very successful in curbing inflation, which quickly intensified two years ago.
Although the rate of price increase accelerated to 10.6 percent in October 2022, the inflation expectations of consumers and companies were kept in check by rapid interest rate hikes, according to Lagarde.
This means that economic actors believed in the central bank’s ability and commitment to return the annual inflation rate to the two percent target level. Detachment of inflation expectations from the target can lead to a self-fulfilling cycle and thus be very harmful to the economy.
“our policy decisions have managed to keep inflation expectations anchored and inflation is predicted to return to the two percent level in the second half of next year. Given the size of the inflationary shock, such an outburst is in many ways remarkable,” Lagarde said.
However, Lagarde stated that the central bank will not rest until inflation has actually returned to its target level. According to preliminary data published on Tuesday, harmonized inflation in the euro area slowed to 2.5 percent in June from 2.6 percent in May.
Costs related to owner-occupied housing, interest and gambling have been removed from the adjusted inflation figure.
Harmonized inflation in Finland has been the lowest in Europe in recent months, only 0.6 percent in June according to preliminary data.
Lagarde according to ECB decision-makers do not want to commit to any single number or variable when deciding on monetary policy. The development of the economy is examined broadly, because there is no certainty whether the economy will react in the same way as in previous crises.
The structures of the economy have been able to change.
The interest rate decisions of the European Central Bank affect the most common reference interest rates, i.e. Euribor, and thus directly the price of, for example, housing and business financing.
The most common reference interest rate, the 12-month Euribor, was 3.58 percent on Friday.
Correction on 2 July 2024 at 11.10 am. Olli Rehn is the CEO of the Bank of Finland. not the CEO of Finland as it was written incorrectly in the text at first.
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