Faced with inflation, the European Central Bank decides a historic increase in its interest rate

Faced with inflation, the European Central Bank decides a historic increase in its interest rate

Faced with inflation, the European Central Bank decides a historic increase in its interest rate

Christine Lagarde, President of the European Central Bank (ECB), addresses a press conference following the ECB's monetary policy meeting in Frankfurt, Germany on 8 September 2022. REUTERS / Kai Pfaffenbach REFILE - QUALITY REPEAT

Save who you can at the European Central Bank (ECB)! On Thursday 8 September, the monetary institution raised the deposit rate by 0.75 points, bringing it to 0.75%. Throughout its history, the ECB had achieved such an increase only at its first meeting, in 1999. At the time, it was essentially a technical decision, to establish the single currency. This time there is fire. Inflation in the euro area stood at 9.1% in August (year over year), while its goal is to keep it around 2% over the long term.

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“Inflation is too high and it will likely to remain so for a long time “, emphasizes Christine Lagarde, its president. At the time your press conference lasted, you said it over and over again the guardian of the euro “determination” bring inflation to 2%. He then announces that this Thursday’s hike is just the beginning. “At our next meetings (which will be held every six weeks), we plan to raise interest rates further. “

Systematically

M.myself Lagarde specified that the next hikes will not necessarily be 0.75 points each time, and that the situation will be systematically re-evaluated, but the trend is clear: by the end of the year the ECB deposit rate, negative since June 2014 and July of this year. year, it will likely be close to 2%. You have to go back to 2008 to find such a level.

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It’s the end of an era, as Mr.myself The guard. “My predecessors had spent their time fighting deflation. That’s why we had set negative interest rates. It has been years since we fought inflation. “ The President of the ECB acknowledges that the current challenge concerns the credibility of the institution he leads. ” In the end, [celle-ci] it will be judged on our ability to bring inflation back to its target of 2% or less. “

Over the past year, the Governing Council of the ECB has seemed constantly overwhelmed by the reality of rising prices. In December 2021, Mmyself Lagarde was still announcing that there had been a rate hike this year “unlikely”. Same thing in June: ECB announcements turned out to be outdated in a few weeks. The monetary institution therefore made the unusual decision to announce a 0.25 point hike in its July rate one month in advance. Finally a month later it was 0.5 points.

“The ECB is giving a negative signal to businesses, pushing them to cut investment and hire” Nicolas Goetzmann, head of macroeconomic strategy at La Financière de la Cité.

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