The ECB announces a cycle of mild rate hikes

European Central Bank it lowered its forecasts for economic growth, and in turn raised its estimates for inflation, which, however, it did not intend to suppress in a decisive manner, but only moderately.

Euro exchange rate against the dollar yesterday fell by more than 0,6%, from 1,077 to ca. USD 1,065, when the authorities of the European Central Bank revealed their cards with plans of moderate monetary tightening.

GDP down, inflation up

The ECB decided to end the purchase of net assets and signaled a 25 basis point increase in interest rates in July, leaving the door open for a larger rate hike in September (the ECB does not meet in August).

At the same time, the bank lowered its estimates of the development of the euro area economy. Annual real GDP growth is expected to amount to 2,8% this year, to fall to 2023% in 2,1. and remain at the same level also in 2024.

As for the prices, new forecaststhat have been revised upwards predict that annual inflation will be 6,8 percent. in 2022and then it will drop to 3,5%. in 2023 and to 2,1 percent. in 2024

Forecasts may indicate that the euro area economy will soon return to the place it was before the epidemic, when economic growth also slowed down, but this was not accompanied by inflation rising above the scale of expectations. Therefore, the situation now seems much more difficult. There are also risk factors that may have a negative impact on GDP growth and positively on inflation, leading to stagflation.

The Americans raise more vigorously

The ECB is beyond The bank of Switzerland i Japan the last of the major central banks to start with interest rate hikes. It is assumed that by the spring of next year they may increase by 2 percentage points. Thus, the deposit rate from the current level of minus 0,5 percent. could increase to 1,5 percent.

Meanwhile, on the other side of the Atlantic, where the latest inflation data will be announced today at 14:30, Federal Reserve has been raising interest rates since March, bringing them to the level of 0-75-1 percent. At the meetings in June and July, the Fed may announce further moves by 0,5 percentage point. up.