The European Central Bank may raise interest rates for a 10th consecutive meeting on Thursday. Lagarde was keen to stress that the recent market turmoil is different from what happened during the global financial https://1investing.in/ crisis of 2008. Equity action Thursday showed some relief across the banking sector, after Credit Suisse said it will borrow up to $54 billion from the Swiss National Bank, the country's central bank.

• Now it’s time to review both what she said and the fresh statement the E.C.B. has released with additional policy details.
• On the basis of its updated assessment, the Governing Council decided to take further steps in normalising its monetary policy.
• In particular, its interest rate decisions will continue to be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.
• In particular, as the Governing Council continues normalising monetary policy, the TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries.
• “There’s a clock running here,” Jerome H. Powell, the Fed chair, said during a recent event.

In one swoop, the bank ended an eight-year era of negative interest rates — a policy dating to 2014, when the concern was too-low inflation and banks needed to be encouraged to lend more generously. However, this is a tricky issue for the central bank, which cannot be seen to act directly to address bond yields as this isn't part of its mandate. Any such moves could spark criticism that it is protecting euro zone governments from market dynamics, and raise expectations that it could always act when yields rise. Initial pressures on the banking sector emerged last week, when U.S. authorities deemed Silicon Valley Bank insolvent. The event threw international subsidiaries of the bank into collapse and raised concerns about whether central banks are increasing rates at too aggressive of a pace.

Easy money won’t solve Christine Lagarde’s economic problems

Some EU countries remain in lockdown and others have tough social restrictions still in place. This could add further pressure on the 19 euro zone economies, and hinder their economic recoveries. LONDON — The European Central Bank has said it expects to increase its bond purchases "significantly" next quarter, after borrowing costs rose in the region. HSBC listed service sector inflation pressures, sticky core inflation and policy rates being far from their peak as reasons for the downgrade. This decision shows that the hawks must have got cold feet, fearing that the promised higher-than-25bp rate hike in September would be washed away by the looming recession.

European stocks rose, then fell, and ended the day roughly where they started, after investors reacted positively to the E.C.B.'ss more aggressive action to tame inflation but were left unsure of the details of the Transmission Protection Instrument. Not all European countries’ stock markets reacted equally, with France rising, while Italy — seen as one of the countries the T.P.I. is meant to help — trailing. FRANKFURT — As consumer prices across Europe soar at the fastest rate in generations, officials in Frankfurt on Thursday took a powerful step to control rapid inflation amid mounting concerns over an economic slowdown. Back in December, the ECB forecast that gross domestic product (GDP) in the euro zone would rise by 3.9% this year and 4.2% in 2022.

Market reaction

It also cut a key subsidy to banks - an attempt to force them to repay early trillions of euros' worth of ECB loans - and said detailed discussions on winding down the ECB's huge holdings of mostly government bonds will begin in December. The euro traded lower against the U.S. dollar off the back of the announcement, dropping by 0.3% to $1.105. This sudden political upheaval could complicate matters for the E.C.B. because analysts had expected its new tools to stop market fragmentation would help Italy. But with so much political change, the central bank will be wary of doing anything that could be seen as encouraging fiscal irresponsibility. For others, the E.C.B. has little choice but to forge ahead with interest rate increases in an attempt to keep prices from rising even further. Lagarde said that at this point in time, she does not know what that neutral rate might be, which is a very blunt statement for a central banker.

Rapidly rising borrowing costs for Italy in recent months had intensified focus on whether bond market moves were orderly and in line with a country’s economic fundamentals or disorderly and a threat to the effectiveness of monetary policy. As well as announcing its first interest rate increase in 11 years, the European Central Bank introduced a new policy tool on Thursday to limit the divergence in borrowing costs across the eurozone’s 19 members. “Inflation continues to be undesirably high” and is expected to remain so for some time, Ms. Lagarde said at a news conference on Thursday. The latest economic data “indicate a slowdown in growth, clouding the outlook for the second half of 2022 and beyond,” she said.

Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 0.50%, 0.75% and 0.00% respectively, with effect from 27 July 2022. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2.50%, 2.75% and 2.00% respectively, with effect from 21 December 2022. At its February meeting the Governing Council will announce the detailed parameters for reducing the APP holdings. By the end of 2023, the Governing Council will also review its operational framework for steering short-term interest rates, which will provide information regarding the endpoint of the balance sheet normalisation process. At the height of the eurozone’s sovereign debt crisis a decade ago, the central bank tried to design a policy tool that would match the commitment by Mr. Draghi, then the president of the European Central Bank, to do “whatever it takes” to save the euro.

Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. Lagarde said policymakers would discuss the "key principles" of how shrink the 3.3 trillion euro Asset Purchase Programme at their December policy meeting.

Government bond yields have shot higher, as investors adjust to the larger-than-expected rate increase from the E.C.B. A single rate hike is of little significance by itself, said Brian Nick, the chief investment strategist at Nuveen. Today’s move “does not change Europe’s inflation outlook at all, and should not have any lasting impact on equity markets,” he said. “The E.C.B. is still deploying a distinctly more accommodative monetary policy than other major central banks,” Wolfgang Bauer, a fund manager at M&G Investments, wrote in a note.

Economic outlook

The move meant money sitting in corporate bank accounts would slowly be eroded, while household deposits earned a very low rate of interest. The E.C.B.’s decision to raise interest rates more than the bank anticipated just a few weeks ago harms the credibility of forward guidance from central banks, according to Deutsche Bank’s Jim Reid. Concern is growing that the bloc will enter a recession, especially if Russian natural gas supplies are cut off or gas rationing hampers industrial production, halting rate increases sooner than expected.

Net sales were up 6% for the second quarter, compared with the same period of the previous year, which the fashion group attributed to unfavorable weather conditions. Shares of H&M topped the Stoxx 600 index with a 6.7% uptick, despite weaker-than-expected second-quarter sales. "From my point of view … I think we do need a regulation and all the players, even the U.S. players, agree with that. I think we need a global regulation," French President Emmanuel Macron told CNBC's Karen Tso on the sidelines of the VivaTech conference in Paris. The FTSE 350 is among the worst-performing indexes in developed markets, HSBC wrote, and it expects earnings to decline by around 2% in 2023. The pan-European Stoxx 600 index provisionally ended down 0.1% following the ECB announcement, paring earlier losses.

These additional instruments have served us well and will remain part of our toolbox. They give our monetary policy more space to act against the risk of low inflation or deflation. The rate on the deposit facility and the rate on the marginal lending facility define a floor and a ceiling for the overnight interest rate at which banks lend to each other.

At the end of the meeting, “all members rallied to the consensus of 50bps,” she said. The former European Central Bank president offered his resignation last week after the Five Star Movement (M5S), a key component of his broad coalition, snubbed a vote on a €26bn cost of living package. This means an early election in the autumn in Italy, and political uncertainty until then. According to data provided by Russia’s state-owned energy giant Gazprom to Gascade, the German operator of the line, 530 gigawatt hours (GWh) will be delivered during the day.

Tools

Over the following four years, Pfizer charged prices between 780% and 1,600% higher than previously. The company supplied the drug to Flynn, which then sold the capsules on to wholesalers and pharmacies at a price between 2,300% and 2,600% higher than the prices previously charged by Pfizer. The vast total captured by petrostates and fossil fuel companies since 1970 is $52tn, providing the power to “buy every politician, every system” and delay action on the climate crisis, says Prof Aviel Verbruggen, the author of the analysis. The huge profits were inflated by cartels of countries artificially restricting supply. Mario Draghi has confirmed his resignation as Italy’s prime minister after an attempt to salvage his broad coalition failed when three key parties snubbed a confidence vote, paving the way for snap elections that could take place as early as late September. It cut its estimate for full-year core earnings to about £120m from a market expectation of approximately £160m after rapid hiring in the content division hit first-half earnings.

Within the ECB’s mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability. Ms. Lagarde said an “updated assessment of inflation risks” had led to the decision to raise rates by double the amount forecast at its last meeting. Another reason, she said, was the bank’s approval of a new policy tool aimed at preventing “unwarranted” disparities in eurozone countries’ borrowing costs that would impede the effectiveness of monetary policy. That assessment was complicated even further on Thursday when Mario Draghi, Ms. Lagarde’s predecessor at the central bank, resigned as prime minister of Italy. After just 17 months, the coalition government he led in an effort to bring about economic reforms fell apart.

Reuters reported that the ECB staff will raise its inflation forecast for this year and next while lowering its growth forecast. A leak on the eve of the European Central Bank’s interest-rate meeting has changed expectations heading into the meeting. The Federal Open Market Committee suggested the pause would give it time to take stock of the situation and did not rule out further increases.

In parallel, the Governing Council will keep reducing the Eurosystem’s asset purchase programme (APP) portfolio at a measured and predictable pace. In line with these principles, the Governing Council expects to discontinue the reinvestments under the APP as of July 2023. The ECB’s rate rise came after the US Federal Reserve paused its interest rate hikes on Wednesday. The ECB increased its benchmark policy rate by another 25 basis points and is expected to say that future rate decisions will be data-dependent, as uncertainty weighs on the inflation and growth outlook.

Goldman Sachs quickly adjusted its rate expectations for the Federal Reserve, due to meet next week — the bank now anticipates a 25 basis point increase, after previously forecasting a 50 basis point hike. Beyond September, based on its current assessment, the Governing Council anticipates that a gradual but sustained path of further increases in interest rates will be appropriate. In line with the Governing Council’s commitment to its 2% medium-term target, the pace at which the Governing Council adjusts its monetary policy will depend on the incoming data and how it assesses vertical horizontal difference inflation to develop in the medium term. Today, in line with the Governing Council’s strong commitment to its price stability mandate, the Governing Council took further key steps to make sure inflation returns to its 2% target over the medium term. The Governing Council decided to raise the three key ECB interest rates by 50 basis points and approved the Transmission Protection Instrument (TPI). Borrowing costs for Italy, which has one of the highest debt burdens in the eurozone, have risen sharply since the European Central Bank reaffirmed its plans to raise rates.

Stocks in Spain and France rose, while German stocks fell and Italy’s benchmark index dropped 1.4 percent. The E.C.B. said it would publish more information about the new policy tool later today but I’m sure at the press conference Ms. Lagarde will be pressed for details on its design. Germany’s 10-year government bond yield, which acts as Europe’s benchmark, jumped 0.1 percentage points. The yield on Italian 10-year government bonds, already under pressure, jumped 0.25 percentage points, its biggest one day move for over a month. Lagarde also mentioned the depreciation of the euro as another inflationary pressure.

The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term. The rate increase today reflects the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. According to the June macroeconomic projections, Eurosystem staff expect headline inflation to average 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025.