Lagarde goes ahead with the monetary tightening – Corriere.it

The pause in the interest rate hike decided by the Fed on Wednesday 14 June did not find an echo in the ECB’s monetary policy. Today Frankfurt, in line with the almost unanimous forecasts of analysts, decided on the eighth interest rate hike in less than a year. With a “adjustment” of 0.25%, the reference rate for the euro area thus goes from the 3.75% decided at the meeting of 4 May to 4%. And it didn’t end like that. Economists estimate that between now and September the ECB could decide two more rate hikes, bringing the cost of money in the eurozone to at least 4.25%, probably beyond. A level now very close to that 5-5.25% reached by the cost of money in the United States, which however, having started the cycle of increases before the ECB, reached an inflation rate of 4% in May, two points less than the eurozone.

Priority to the fight against inflation

In the monetary policy decisions of the ECB Board (which is driving up the cost of mortgages) the “hawkish” view prevailed – as a hawk – or that hard approach which, while taking into account the negative effects of such a rapid and sustained increase of interest rates on the productive system, on households and on businesses, considers the fight against inflation a priority, whatever the cost. Indeed, the latest May data on this front are not comforting. Inflation in the euro area has indeed decreased from the maximum peak of 10.6% reached in October 2022, but in May of this year it still stood at 6.1% (down modestly from 7% in April) and therefore on a level very far from that objective of a 2% increase that the ECB intends to pursue and which is an essential part of its mandate. However, such a rapid increase in interest rates, which went from zero at the beginning of July 2022 to 4%, had a very clear impact on the real economy: Germany, just to mention the main economy of the Eurozone, entered a technical recession (two consecutive quarters of negative GDP growth). The Italian economy, thanks also to the funds of the Pnrr, is better coping with the impact with an estimated growth for 2023 of around 1.1%. But watch out for inflation.

The comment by Carlo Messina (Intesa Sanpaolo): never again zero rates

“I have no negative opinion on what the ECB has done in recent years” in terms of interest rate choices, said the CEO of Intesa Sanpaolo Carlo Messina during an event in Milan. “However, the path that the ECB now faces – he added – leads us to imagine a further increase of 50 basis points, then if inflation returns to a reasonable level there could be a path that leads to a reduction in interest rates from next year.” “We are in a world that will never return to zero interest rates,” he continued. For Messina “in a normal world rates are between 2 and 3%, the fact that rates are not at these levels is a pathology and this is causing slowdowns in the economy”.