Fields for her are shrinking ECB regarding his plan for a major new increase interest rates euro as recession is around the corner Eurozonewhile the cost of borrowing is approaching levels that no longer support the economy.

Despite the surge in inflation, the ECB’s notorious goofs, the fanatical supporters of the restrictive monetary policy that has dominated the bank’s bosom in recent months, no longer have much potential to convince a new and aggressive interest rate is needed. hiking. And that’s because precision, combined with the risk of winter energy shortages, undermines confidence in the eurozone. However, it is possible that the ECB will embark on aggressive new increases at the next two meetings, in October and December, and markets are already betting that the bank will continue with a new 75 bps increase at the first meeting. . It is expected that prices will continue to rise in the new year, and the position already taken by the world’s largest central banks will tighten even more. But as the clouds darken over the eurozone economy, it is likely that the hawks will clash with the doves of the ECB, the loose monetary policy stalkers who have remained silent all the while it has been winding down. The policy instrument was updated and interest rates were raised by a total of 125 basis points.

According to Carsten Junius, head of economists at Bank J Safra Sarasin, “The ECB needs to act quickly now to aggressively curb expectations of faster inflation before secondary inflationary pressures build up with higher wages.” As he explains, “Once a recession becomes a reality and pressures on the economy begin to show, it will be difficult to continue with larger interest rate hikes.” In its latest forecasts, the ECB does not include a recession scenario for the eurozone. It is also possible that the forecasts themselves have given way to events related to the energy crisis caused by Russia, as well as the latest data indicating a slowdown in economic activity. And at the same time, a growing number of economists see slower growth as inevitable.

President Christine Lagarde emphasizes that a recession will not distract the bank from its task of bringing inflation back to its 2% target from the nightmarish 10% it soared to last month. He even emphasizes that he does not see the possibility of a slowdown, which in itself will lead to lower prices. As he said on September 28, “the main goal of the bank is price stability, and this is what we will strive for, and if we do not achieve this, then the economy will suffer much more.” Macroeconomic data for the third quarter will be available to the bank no earlier than October 31, that is, when four days have already passed after its decision on the interest rate. And the initial picture of a recession will not appear until next January, when the data for the last three months of 2022 are released. By then, most of its leaders want to raise the deposit rate from the current 0.75% to – called a neutral level, which does not stimulate or limit economy, i.e. close to 2%.

Portugal’s central bank chief Mario Centeno stresses that if the bank raises borrowing costs too much, it risks being forced to close later.

To achieve this immediately, the heads of the central banks of Latvia and Lithuania, Mārtiņš Kazaks and Gendiminas Simkus, are among those who at the October meeting propose to double the deposit rate to 1.5%. Their place is shared by Finn Olli Rehn and German Joachim Nagel. They were also joined by Dutchman Klaas Knott, who said on Monday that at least two more “significant” rate hikes are needed. In the opposite camp, ECB chief economist Philip Lane recommends restraint and stresses that it is too early to decide on the ECB’s next move.

In addition, Portugal’s central bank governor Mario Centeno advises caution and stresses that if the bank raises borrowing costs too much, it risks being forced to close later. And, of course, the Italian Ignacio Visco, who spoke much more clearly a few days ago, stressing that “an excessively rapid and significant increase in interest rates will increase the risk of a recession.”