The European Central Bank will monitor very closely how economic conditions are evolving and will act accordingly to raise interest rates. In this context, the March meeting can be crucial, as according to the head of the ECB, the BoD. he will have more information at his disposal and will be able to make an assessment of the situation with greater confidence and consequently the decisions he will make.
“I do not like to commit without proper guarantees,” said ECB chief Christine Lagarde when asked if there would be an increase in interest rates this year, at a time when financial markets have almost discounted that the first interest rate increase will come in the fourth quarter of 2022. In fact, a large portion of investors are investing in futures to raise interest rates next October.
However, the President of the ECB did not want to give a clear answer, thus enclosing with a mystery how it will move in the near future. The difference from the previous guidance of the ECB is that it no longer rules out a possible increase in interest rates in 2022, or even more than one.
At the beginning of her speech, the French economist said that the Eurozone economy continues to recover and the labor market still shows a strong picture.
In the fourth quarter, the economy recorded a rate of 0.3% and economic activity reached pre-pandemic levels.
However, this growth is expected to slow down in the first quarter of 2022, as the Omicron mutation has affected economic activity. Accelerated inflation, which hit record highs in January, is hurting economic activity, and rising energy prices are affecting household incomes and spending.
Inflation will remain high for longer than previously estimated, but will start to slow this year.
If prices continue to push upwards, then inflation will remain high. Energy costs pose a risk to both households and businesses.
“Higher energy costs limit the purchasing power of households and the profits of businesses, which affects consumption and investment,” he said.
“We must maintain our flexibility with particular care in the coming period,” he said.
At the same time, however, he appeared more optimistic about the shortages of raw materials and manpower. While he pointed out that in some industries these shortages are still creating problems in their production, there are indications that these problems are receding, however they will exist for some time to come.
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