The ECB will continue to raise interest rates for the foreseeable future and does not appear to have plans to stop anytime soon. So ECB President Christine Lagarde told the WEF yesterday. According to economist Edin Mujagic, that message should be seen as a warning to financial markets.
Especially since, according to Mujagic, the markets always think differently. “Markets are insisting that rate hikes will soon be a thing of the past,” he says. But yesterday Lagarde said she is inviting markets to revise their positions. Translated into normal Dutch, he actually says to warn markets to adjust their expectations, because otherwise they will get wet. The ECB will simply continue to raise interest rates.’
And the rate of interest rate hikes doesn’t look likely to change either. Where markets like to talk about an interest rate cut to 25 basis points, Lagarde is also limited to simply 50 basis points, according to Mujagic. “The first increase will be implemented on February 2, with another fifty to follow in March.”
The increase is fixed
According to Mujagic, it is certain that the ECB will raise interest rates in February and March, but what happens next seems still open. “But if you look beyond that, you see inflation and economic growth going down and down,” he says. “These are in themselves reasons why the ECB should take it easy after March.”
Furthermore, according to Mujagic, there is an additional effect from the United States. The ECB’s sister, the Fed, is already slowing down. So in a few months they will stop raising interest rates,” he continues. “You should see these two central banks as two vehicles driving on a road, with the Fed in the lead. And if the Fed brakes and stops, the ECB will follow too. Otherwise you will have a disaster.’
Mujagic likes to look to the past for this. “The ECB always follows what the Fed does. And the interest rate differential between the two central banks is usually two percentage points. So if you now see that the Fed wants to raise interest rates by four to five percent, you can say that the ECB is going to raise interest rates by two to three percent.’
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.
