ECB ready to raise rates at upcoming meetings – Economy

“Further normalization of interest rates will be appropriate in the next Governing Council meetings.” The European Central Bank writes in the Economic Bulletin, explaining that the decision to raise by half a point in July, which anticipated the exit from negative rates, “allows the Governing Council to move to an approach in which decisions on rates are taken from time to time “and on the basis of economic data.

High inflation, supply bottlenecks and uncertainty “are casting more than a shadow on the outlook for the second half of 2022 and beyond,” writes the ECB in the Economic Bulletin, noting that “Russia’s unwarranted aggression towards Ukraine represents a persistent brake on growth “and” the impact of high inflation on purchasing power, persistent supply-side constraints and increased uncertainty have a dampening effect on the economy “. Businesses continue to face higher costs and disruptions in supply chains, although there are timid signs of easing some supply-side bottlenecks.

“Economic activity in the euro area is slowing down” and the war in Ukraine “is a persistent brake on growth”. However, with the reopening of the economy and the resumption of travel, “tourism should favor the economy in the third quarter of this year”. According to the ECB, “the protracted war in Ukraine continues to represent a source of significant downside risks to growth”, especially if energy supplies from Russia were to lead to rationing for households and businesses.

“In the last days of the reference period (9-20 July, ed.) The yield spreads of euro area government bonds returned to higher levels, with the evolution of the political crisis in Italy”. In a situation of greater volatility, Italy’s spread “also decreased by 8 basis points overall, but its volatility increased towards the end of the period under review, reflecting the political crisis in the country”.

The flexibility in reinvesting the repaid capital on maturing securities of the portfolio of the pandemic emergency purchase program (Pepp) remains “in any case” the “first line of defense in order to counteract the risks for the transmission mechanism related to the pandemic “. The ECB describes the ICT, the anti-spread shield approved in July, as” an additional tool available to the Governing Council, which can be activated to combat unjustified and disordered market dynamics that seriously jeopardize transmission monetary policy across the euro area “.

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