ECB Raises Rates Another 50 bps as Expected, Forecasts Higher Inflation

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    Lagarde opening statement:

    We have made substantial progress in withdrawing accommodation
    Inflation remains far too high
    Consumer and business confidence has fallen rapidly
    Expect further economic weakening in remainder of this year and next year
    Expect economy to slow down substantially over remainder of the year
    Cites weaker global demand and also due to tighter monetary policy
    The post-pandemic rebound in services demand is slowing
    Labour market performed well but somewhat higher unemployment possible as economy slows
    Inflation-shielding should be targeted at the most vulnerable
    Risks to economic outlook clearly on the downside, cites war, supply disruptions and weakening world economy
    Risks to the inflation outlook are primarily on the outside, led by retail energy prices
    A weakening of demand would lower prices pressures
    Bank lending to firms remains robust
    We expect to raise interest rates further
    With this third major hike in a row, we have made substantial progress in withdrawing accommodation
    Future decisions will continue to be data dependent and we stand ready to adjust all instruments


    Lagarde Q&A:

    We are deliberately turning our backs on forward guidance
    We have to do additional rate increases
    The pace of hikes will be determined meeting-by-meeting and be data dependent
    Did not discuss substantive APP issues today
    We stil have ground to cover on normalization
    The ultimate destination is the rate that will deliver 2% inflation in the medium term
    It might well be ‘several meetings’ but it will be determined meeting by meeting


    ECB’s Villeroy:

    – ‘Jumbo’ Rate Hikes Will Not Become a New Habit
    -Will Probably Continue to Raise Rates
    -But May Do So in a More Flexible And Possibly Less Rapid Manner


    ECB’s Lane says expects more rate hikes but “a lot has been done already”
    Remarks by ECB chief economist,

    It is unclear if inflation peak has been reached or still to come next year
    Cannot exclude some inflation at the start of next year
    Must take past rate hikes into account when considering next

    Helmholtz Watson

    ECB raised key rates by 50 bps in its December monetary policy decision following a 75-bps rate hike in October, and matching expectations from most a
    [See the full post at: ECB Raises Rates Another 50 bps as Expected, Forecasts Higher Inflation]

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