On July 21st, five days before the tenth anniversary of the most famous and decisive harangue in the history of the euro – Mario Draghi, its president, said: “within our mandate, the ECB is prepared to do whatever is necessary to preserve the euro and, believe me, it will be enough” – it is the day marked on the calendar for the first rise in interest rates in the eurozone since November 2011. It is not certain, but it is very likely that it will be so.
The governing council of the European Central Bank will have stopped fattening its balance sheet on June 30, when it ended its bond purchase program to facilitate cheap financing for states, companies and families and stimulate the economy. With inflation at 7.6% and uncertain expectations due to the impact of the Russian war on energy prices and also due to the rise in core inflation to 3.5%, the pressure for the ECB to move it’s huge.
And Lagarde, its president, was this Wednesday more forceful and concrete than ever before, even maintaining part of the reserve due to the one required by the position… “The first increase will take place some time after the end of the net purchases of assets Lagarde said. That’s July, right? It seems so, although the banker, other times concerned about the messages from some of her fellow battlers at the Eurobank, avoided giving a definitive answer and returned to her usual ambiguity and prudence: “We have not yet precisely defined the notion of some time , but I have been very clear that this could mean a period of only a few weeks”, he added in his public intervention in Ljubljana (Slovenia) where he advocated a “gradual” normalization of monetary policy.
Unlike the Fed, the ECB will not raise rates abruptly. Nor can it do so, due to the consequences of these movements in the growth of the eurozone – almost zero, now – and the financing of states with very high debt and deficits, nor does it believe it is necessary, since it maintains the discourse that inflation will fall with strength in the medium term. The market assumes that everything will be very slow and that rates will take time to rise and that bank deposit rates, at -0.5%, will rise by around one point before the end of the year.
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