Banca March: The ECB followed the script and at Thursday’s meeting increased the price of money once again, raising all its interest rates by 25 b.p., bringing the benchmark rate to 4% and the deposit rate to 3.5%. However, the most relevant aspect was economic expectations and clues as to the monetary authority’s future moves. In these sections, it should be noted that the ECB lowered its GDP growth forecasts by one tenth of a percentage point for both this year and next, to +0.9% and +1.5%, respectively. On the inflation side, the outlook for moderation was curbed and the ECB points out that the core inflation rate will remain far from its targets: the new forecasts point to a core inflation rate of +5.1% this year and furthermore, it revises upwards its expectations for 2024 by five tenths to +3%, which moves expectations of inflation containment further away and the ECB’s targets will not be reached.
As for future decisions, Christine Lagarde warned that there is still some way to go: after eight consecutive rate hikes (the most aggressive cycle in its history) the ECB still does not see the necessary conditions for a pause and would raise the price of money by another 25 b.p. at its July meeting. Although the ECB president acknowledged that monetary policy is starting to affect the economy by curbing the volume of credit, she also noted that the strength of the labour market is supporting GDP. These words have put pressure on the market, which already assigns a 100% probability of a hike in July and a 65% probability of a hike in September.
