The series of interest rate hikes by the European Central Bank to contain high inflation is probably coming to an end. According to Vice President Luís de Guindos, price increases will become less and less intense in the coming months. “We have entered the final stage of our monetary tightening journey.”
“We are returning to a normal situation, with steps of 25 basis points,” the central banker said in an interview with the Italian business newspaper Il Sole 24 Ore. The final decision on whether or not to continue raising interest rates depends on the information available to the ECB at the time, says De Guindos.
Cost of labor
On the financial markets, the ECB is expected to raise interest rates by a quarter of a percentage point two more times, in June and July. But according to the Bloomberg news agency, which relies on insiders, there are also reports that the central bank wants to raise borrowing costs further.
Interest rate hikes by the ECB will affect the lending that eurozone banks make to households and businesses. The idea is that this will reduce the flow of money into the economy, which should curb inflation. The downside is that this slows down economic growth. “Higher interest rates are starting to hit companies, but there hasn’t been a wave of bankruptcies,” says De Guindos, who also has no signs that safe bonds have suddenly become riskier. As for households, the strong labor market continues to provide support. So far so good, I’d say. But obviously we will continue to monitor the situation.’
Social media
De Guindos says the situation in Europe is different than the recent turmoil surrounding American midsize banks. For example, eurozone banks would rely more on deposits from small retail customers, which he says makes them less vulnerable. “But the fact remains that digitization and social media can play a role in driving a run on the banks,” says the ECB vice-president. He therefore insists on the importance of a European-wide deposit guarantee scheme, which has been in the works for years.
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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.
