The Fed’s interest rate decisions marked the markets throughout 2022. In order to contain rising inflation in the United States, the Fed finally raised the key rate by 75 basis points in June to 1.5-1.75%. The Fed raised interest rates by 25 basis points in March and by 50 basis points at its May meeting.
But today the scene will be the European Central Bank (ECB). The ECB, which is expected to raise interest rates for the first time in 11 years, has been criticized for being slow to take tightening measures recently.
ECB President Christine Lagarde previously gave a clear signal at the July meeting that she would raise interest rates by 25 basis points. However, since last week, international news agencies have been reporting that a 50 basis point interest rate hike for the ECB is on the table in news they have based on sources familiar with the matter.
This undeniable news contributed to the euro/dollar parity, which fell below 1 for the first time in 20 years last week, rising above 1.02 this morning. As inflation became a problem around the world, worries about economic contraction as European countries’ access to cheap Russian gas gradually diminished due to the attempt to invade Ukraine led to a loss. of the euro against the dollar.
Due to clear signals from the ECB, a 25 basis point increase was usually prominent in market research. However, while nearly all economists polled by Reuters, for example, said they expected a rate hike of 25 basis points, they actually said the bank should hike 50 basis points.
If an increase of 50 basis points is made, the key rate will drop from minus 0.5% to 0%. Ahead of the latest news, the ECB was expected to raise 25 today, and a tougher raise at the next meeting.
Therefore, when the “25 or 50” uncertainty has disappeared, the eyes of the markets will turn to the messages that the ECB will give regarding the next meetings. These messages will be as important as the interest rate decision in the evolution of the markets.
INFLATION BREAK A RECORD
The ECB’s inflation target for the Eurozone is 2%, and the ECB has previously announced that it will do whatever is necessary to achieve this target. However, data released yesterday revealed that this target is not yet on the horizon.
According to data published yesterday by the European Statistical Office (Eurostat), annual inflation in the euro zone, which was 8.1% in May, broke a record, reaching 8.6% in June.
DOUBLE HOUSES IN 15 COUNTRIES
Annual inflation, which was 8.8% in May across the EU, rose to 9.6% in June. Inflation was 8.2% in Germany, 6.5% in France, 10% in Spain, 8.5% in Italy, 10.5% in Belgium, 14.8% in Bulgaria, 16.6% in Czechia and Latvia in June 19.2, 20.5% in Lithuania and 22% in Estonia.
Thus, the inflation rate reached double digits in 15 of the 27 EU Member States.
Today, the CBRT will also announce its decision on interest rates at 2:00 p.m. The bank is expected to keep its key rate unchanged at 14%.