The European Central Bank’s “nine consecutive additions” is difficult to relieve inflationary pressure

Since July 2022, the European Central Bank has raised interest rates nine times in a row, bringing the cumulative rate hike to 425 basis points. High inflation is the key factor prompting the ECB to decide on the “nine consecutive additions”. The external environment is hard to say optimistic, and it has strengthened the ECB’s “seeking stability” mentality. The Eurozone economy has now entered the dilemma of “high inflation before and weak growth later”, which has led to the rapid squeeze of the European Central Bank’s room for maneuver in monetary policy. Considering that the euro zone is currently facing a relatively high risk of economic recession, and has accumulated financial risk pressure from the banking industry spilled from the United States, the European Central Bank still needs to maintain its strength in the future and, on the basis of the decision-making idea of “stabilizing inflation”, more flexibly Adopt a monetary policy that adapts to the actual economic development in the euro zone.

On July 27 local time, the European Central Bank’s monetary policy meeting decided to raise interest rates by 25 basis points from August 2. The three key interest rates of the main refinancing, marginal lending and deposit mechanisms will be raised to 4.25%, 4.50% and 3.75%. In order to ensure that the effects of monetary policy adjustments are fully transmitted to the money market, the ECB also decided to reduce interest payments on reserves and set the minimum interest rate on reserves to zero. This is the ninth consecutive interest rate hike by the European Central Bank since July 2022, with a cumulative rate hike of 425 basis points. Since then, the European Central Bank has set a new record for the “most aggressive” monetary tightening cycle in its history. However, after the previous eight consecutive rounds of interest rate hikes, the ninth round of policy met market expectations, and there was no unexpected policy “turning point”, which instead reflected the European Central Bank’s prudent policy considerations.

High inflation is the key factor that prompts the European Central Bank to decide “nine consecutive additions”. The relevant announcement issued by the European Central Bank after the meeting pointed out that in order to bring down the inflation rate, it is still necessary to maintain the high level of the three key interest rates in the euro area. The European Central Bank believes that changes in inflation levels will be the key basis for decision-making on interest rate adjustments. According to data previously released by the European Central Bank, the overall inflation rate in the euro zone was 5.5% in June, a decrease of 0.6 percentage points from the previous month, but the relevant level is still higher than the 2% inflation warning line established by the European Central Bank. After fluctuations in the prices of basic livelihood products such as alcohol, cigarettes and alcohol, the annual inflation rate in June rose from 5.3 percent to 5.5 percent instead of falling in May. Faced with such inflation performance, it is difficult for the European Central Bank to make an assessment conclusion that the price level has fully “fever”. Therefore, when the European Central Bank looks forward to future changes in inflation levels, it believes that the inflation rate in the euro zone is expected to be lowered within this year, but it may be difficult to drop below 2% in the short term. “Ambivalence.

The external environment is hard to say optimistic, which has strengthened the ECB’s “stability” mentality. At present, the overall weakening of global economic and trade activities, external geo-military conflicts, and the spillover effects of the US banking debt crisis are always the “Sword of Damocles” hanging over the European economy. European Central Bank President Christine Lagarde said frankly at the press conference after the meeting that the future inflation level also faces a high degree of external uncertainties. In addition to the increasingly obvious impact of the Russia-Ukraine conflict on the European economy, the European Central Bank It is also worried that other sudden large-scale geopolitical conflicts and systemic financial risks will become “black swans” that affect its own development. Lagarde emphasized that the economic growth of the euro zone is also disturbed by the above-mentioned external factors, and the European Central Bank is increasingly worried about the growth prospects.

Lagarde is not unfounded. The Eurozone economy has indeed stepped into the dilemma of “high inflation before and weak growth later”, which has led to the rapid squeeze of the European Central Bank’s room for maneuver in monetary policy. A comprehensive analysis of multiple core economic indicators in the euro zone in July shows that after eight consecutive rounds of interest rate hikes, the euro zone has had limited success in curbing inflation, but the real economy has been negatively impacted by the monetary tightening policy, and the “side effects” of weak economic growth have emerged. Specifically, after several consecutive rounds of tightening policies were introduced, the service industry and manufacturing industry in the euro zone have suffered a relatively obvious negative transmission effect. Major economic engines such as Germany and France have encountered troubles of varying degrees. Some market analysts predict that stagflation in the first half of the euro zone economy is basically a foregone conclusion. From the second half of the year to 2024, the euro zone economy may even face the risk of falling into the quagmire of recession again.

Perhaps the policy dilemma is becoming more and more apparent. Compared with the announcement of the eighth round of interest rate hikes in June, Lagarde declared that “the interest rate will be maintained at a relatively high level for a period of time”, and made a decision to implement the ninth round of interest rates in July or The hint of raising interest rates, this time the European Central Bank did not make too many clear expectations for the tone of the monetary policy meeting in September. Lagarde himself only said that the bottom line for the next monetary policy adjustment is “no interest rate cuts”. However, the implementation of the tenth round of interest rate hikes in September is no longer considered a “natural” policy option by the European Central Bank.

Some analysts believe that although the European Central Bank has closely followed the Fed in this round of interest rate hikes, and the United States and Europe have also entered the critical stage of “the second half of interest rate hikes”, in view of the recent differences in the economic fundamentals of the two sides, the follow-up of the United States and Europe Monetary policy may diverge. Especially considering that the current euro area is facing a relatively high risk of economic recession, and has accumulated financial risk pressure from the banking industry spilled from the United States, the European Central Bank still needs to maintain its strength in the future, and on the basis of the decision-making idea of “stabilizing inflation”, it will be more Flexibly adopt a monetary policy that adapts to the actual economic development in the euro zone.

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