Intermoney Report
Most central bank decisions in the coming week, including those of the European Central Bank, are likely to be limited to keeping interest rates unchanged. Lower inflation in the eurozone has reduced the urgency for a further rate rise by our central bank. In China, Chinese commercial banks appear set to keep preferential interest rates unchanged at least until the end of the third quarter. However, the Bank of Indonesia emphasised that the depreciation of the rupiah continues to put pressure on policymakers to raise rates.
As for our central bank, the ECB will keep interest rates on hold, given that inflation is now much more under control and there are, for the time being, no second-round effects, as will be evident in the prices of non-energy industrial goods. Generally speaking, the moderation in wage growth and the wider economy should contain second-round effects, mitigating the inflationary impact of the energy crisis. However, the strength of commodity prices will keep the Governing Council’s messaging more favourable towards a rate rise, although September is not guaranteed to be the key date.
As we have explained, inflation is easing (2.8% year-on-year). In June, it was confirmed that petrol prices drove the fall in the headline figure, due to the drop in commodity prices. Three-quarters of this slowdown was attributable to energy costs: the fuels and lubricants category recorded a 4.9% month-on-month decline. The fall in oil prices also contributed to the decline in core inflation and services inflation via airfares, which in turn moderated core prices (2.4% year-on-year). The easing of inflationary pressures will allow the European Central Bank to keep interest rates unchanged in July. However, the most hawkish members are likely to remain concerned about the overall impact of the energy crisis and push for a final rate rise in September.
