The ECB announced today that it would hike interest rates by 0.5 percent, which surprised BNR’s in-house economist Han de Jong. “This is a very aggressive message from the ECB.”
De Jong points out that the ECB started raising interest rates late “because European inflation is different from elsewhere”. ‘But what Ms Lagarde is saying now is that European inflation is different from elsewhere, which is why interest rates are being raised. But it’s a very aggressive message.’
According to De Jong, however, it could somehow be expected. At one point we saw Klaas Knot at the Buitenhof, who said that “the first half had just come to an end” and that DNB would just continue with rate hikes into the second half. Albeit at a slower pace.’ But, he says, while the Fed expects two more quarter-percentage point hikes, Lagarde is sticking to 50 basis point hikes. “And there will be several, so a sizable increase is in the offing.”
Contrast
However, there is a contrast. Certainly also because the main interest rate in Europe is around 2 percent, while in the United States it is around 5 percent. So there’s still room for maneuver, says De Jong. “It remains curious that the ECB has let inflation run its course for so long, and is now panicking by raising interest rates like this.”
According to De Jong, the bond markets have had enough. “Over the last couple of months, effective bond market yields have declined everywhere and I think the market is sending a signal to central banks that enough is enough,” he continues. ‘But today you see that not only are the stock markets taking a hit, but the bond markets as well. That is, bond yields are rising. The bottom line is that I think the ECB is taking the risk – knowingly and intentionally – of exacerbating a potentially tempting recession.’
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
