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European Central Bank set to raise interest rates for the first time in 11 years


The ECB has announced that it will raise interest rates in July and September to combat record inflation.

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FRANKFURT, Germany – The Council of Governors of the European Central Bank on Thursday is expected to have in-depth and candid conversations about the scale of the first rate hike in 11 years, at the cost of living. Activity remains high in the region.

The euro rose to near two-week highs and euro zone government bond yields spiked on Tuesday morning after Reuters reported, citing a source, that the ECB would weigh whether it chooses to raise 50 basis points. or not instead of the 25 basis points that were given. In.

“It is possible that the ECB wants the option to raise 50bp because of something seen in the unreleased inflation expectations data,” said Mark Wall and his team at Deutsche Bank, said Mark Wall and his team at Deutsche Bank Research. Research said in a recent note.

“It is also possible that the option of a 50bp increase helps to negotiate the details of a powerful defragmentation engine,” he added, referring to the new stimulus plan to be launched on Thursday that will target rate hikes. debt in peripheral countries. such as Italy.

Details of this new defragmenter will be closely watched and come at such a critical time as Italy faces. another serious political crisis.

“While ECB President Lagarde will likely emphasize the temporary nature of this instrument, given the exceptional circumstances faced by the euro area, she will also emphasize the ECB’s determination to ensure preserve the integrity of the monetary union, thus trying to create one,’ Dirk Schumacher of Natixis said in a research note.

Schumacher added: “The fine line that President Lagarde will have to take here – also because of the political situation in Italy – increases the risk of ‘misunderstandings’ and erratic market moves,” added Schumacher.

New tools and a significant rate hike will come as the ECB tackles its main task: stabilizing prices. Euro zone inflation print for June at 8.6%, up from 8.1% in May, and German producer prices in June were 32.7% higher than a year earlier. However, there are signs that things may be slowly improving.

Commerzbank analysts note: “Intermediary commodity prices (excluding energy) are not as strong as they used to be. Year-to-year comparisons fell for the second consecutive month, driven by slightly lower metals prices. “. when looking at recent data.

“As intermediates are ahead of consumer goods prices in this cycle, this raises hopes that intermediates will also peak in the coming months.”

The economic outlook is highly uncertain at this stage amid an increased risk of gas disruptions in the coming weeks. Europe is preparing for an extended shutdown of Russian gas supplies as maintenance work continues on the Nord Stream 1 pipeline that brings gas to Germany via the Baltic Sea.

Some are concerned that the delivery suspension may extend beyond 10 daysderailed the region’s winter supply preparations.

“It is important that the ECB may have to continue tightening policy, even during a mild recession, if wage growth and continued high energy prices lead to rising inflation expectations,” said Anatoli Annenkov. ,” said Anatoli Annenkov in a research note.

He added: “We believe an increase in the policy rate is at least to the bottom of the natural rate range (1-2%), thus being better positioned next year to address the inflation outlook.

—Sam Meredith and Elliot Smith of CNBC contributed to this article.



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