Interest rates in Europe unchanged amid record-high inflation expectations

As predicted, European Central Bank did not raise interest rates today. Inflation in the euro area in September amounted to 3,4%. y / y, preliminary data for October will be released tomorrow - markets expect an increase to 3,7%. The ECB still believes that the price increase is temporary. Markets, however, disagree and do not expect a significant decline in the near term. Long-term inflation expectations, expressed in the form of quotation of 5-year swap rates for the euro area, currently stand at 2,1%, ie above 2%. the ECB's inflation target. It is also the highest trading level since 2014. We can expect changes in the ECB's policy in a month, when the new inflation forecast will be presented. At that time, the ECB may also announce changes in the asset purchase program.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

The interest rate hikes season starts slowly

Yesterday interest rates were raised by 1,5 pp, above market expectations of 1 pp, by the central bank in Brazil. From the beginning of the year, the base rate in this country has already increased from 2 to 7,75 percent. The Canadian central bank, on the other hand, has completed its asset purchase program, which is, on a smaller scale, the equivalent of such a program in the US. The bank's representatives signaled that interest rate hikes in Canada could take place in the second half of 2. The market responded with a sell-off of Canadian stocks of less than 2022%.

Next week - November 3 - we have a meeting FED, which is likely to announce an accelerated cut in its asset purchase program, from its current value of $ 120 billion a month to zero by mid-2022. Then the first rate hikes in the US will most likely take place. It is a decision that the market has been waiting for for months and its decision should be perceived by the market with relief as the elimination of additional uncertainty.

Also on November 3 we will have another Polish meeting Monetary Policy Council. At the October meeting, it raised the main interest rate from 0,1% to 0,5%. Also now, there is a high probability of another hike by 0,25 pp. This is due to a further increase in inflation in Poland, which in October will probably exceed the level of 6%.