ECB Slows Rate Hikes, Signals More Tightening Amid Eurozone Recession

RTTNews | 939 days ago
ECB Slows Rate Hikes, Signals More Tightening Amid Eurozone Recession

(RTTNews) - The European Central Bank slowed the pace of its interest rate hikes, as expected, but said there is a need for significant tightening in future as it markedly lifted the euro area inflation forecast and projected a recession for the single currency bloc during the first half of next year. The central bank also revealed its initial plans to trim its portfolio and said it will stop reinvestment of bond sale proceeds.

The Governing Council, led by ECB President Christine Lagarde, raised the key interest rates by 50 basis points, the ECB said in a statement on Thursday, in sync with its peers the US Federal Reserve and the Bank of England.

The main refinancing rate, or the refi, was thus raised to 2.50 percent, the deposit facility rate to 2.00 percent and the marginal lending rate to 2.75 percent.

The central bank was widely expected to slow the pace of monetary policy tightening this time after inflation came off slightly in several countries on the back of a modest easing in energy prices, leading to a rebound in confidence indicators.

However, the ECB said policymakers expect to raise rates further based on the substantial upward revision to the inflation outlook. "The Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2 percent medium-term target," the ECB said. "Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations."

The latest set of ECB staff macroeconomic projections, released Thursday, showed a significant upgrade to the euro area inflation outlook.

The staff now sees the headline inflation rate at 8.4 percent this year, 6.3 percent in 2023, 3.4 percent in 2024 and 2.3 percent in 2025. Core inflation, which excludes the volatile prices of food and energy, is forecast to average 3.9 percent this year and to rise to 4.2 percent in 2023, before falling to 2.8 percent in 2024 and 2.4 percent in 2025.

"The euro area economy may contract in the current quarter and the next quarter, owing to the energy crisis, high uncertainty, weakening global economic activity and tighter financing conditions," the ECB said.

The ECB staff expects "a recession would be relatively short-lived and shallow."

Eurozone growth projections wee lowered and the staff now sees the economy growing by 3.4 percent this year, 0.5 percent in 2023, 1.9 percent in 2024 and 1.8 percent in 2025. The ECB said the asset purchase programme portfolio will decline at a measured and predictable pace, and it will not reinvest all of the principal payments from maturing securities.

The decline will amount to EUR 15 billion per month on average until the end of the second quarter of 2023 and its subsequent pace will be determined over time, the bank added.

read more
German Exports Decline As Tariff Treats Damp Demand From US

German Exports Decline As Tariff Treats Damp Demand From US

Germany's exports declined for the second straight month in May due to a sharp fall in demand from the US amid tariff threats, data from Destatis revealed on Tuesday. Exports decreased by more-than-expected 1.4 percent month-on-month in May, following April's 1.6 percent fall. Economists had forecast a 0.2 percent drop. Imports slid 3.8 percent from last month.
RTTNews | 3 days ago
Eurozone Retail Sales Drop For First Time In 5 Months; Services Output Fall

Eurozone Retail Sales Drop For First Time In 5 Months; Services Output Fall

Euro area retail sales decreased for the first time in five months and services production declined in May, suggesting a slowdown in the second quarter. Retail sales logged a monthly fall of 0.7 percent in May, reversing April's 0.3 percent increase, Eurostat reported Monday. Sales were expected to drop 0.8 percent. Another data from Eurostat showed that services production decreased 0.3 percen
RTTNews | 3 days ago
Eurozone Investor Confidence Strongest In More Than 3 Years

Eurozone Investor Confidence Strongest In More Than 3 Years

Eurozone investor confidence rose to the highest level in more than three years in July suggesting that fears of recession triggered by the US tariff shocks are completely off the table, survey data from the behavioral research institute Sentix showed on Monday. The investor confidence index advanced to 4.5 in July from 0.2 in June. The reading was the highest since February 2022 and also stayed
RTTNews | 4 days ago
German Industrial Production Rebounds In May

German Industrial Production Rebounds In May

Germany's industrial production rebounded in May driven by robust demand for automobile and pharmaceutical products, official data revealed on Monday. Data released by Destatis showed that industrial production grew 1.2 percent in May from a month ago, confounding expectations for a decline of 0.6 percent. Output in April was revised down to show a 1.6 percent fall compared to the 1.4 percent d
RTTNews | 4 days ago
German Factory Orders Log Bigger-Than-Expected Fall

German Factory Orders Log Bigger-Than-Expected Fall

Germany's factory orders declined more than expected in May on falling demand from both the domestic market and other euro area economies, official data revealed on Friday. Factory orders decreased 1.4 percent from a month ago, Destatis reported. Orders were expected to drop 0.2 percent after an upwardly revised 1.6 percent rise in April. Orders declined for the first time in four months.
RTTNews | 6 days ago
Eurozone Private Sector Expands More Than Estimated

Eurozone Private Sector Expands More Than Estimated

The euro area private sector expanded more than previously estimated in June as both manufacturing and services sectors registered higher output, final survey results from S&P Global showed on Thursday. The HCOB final composite output index advanced to 50.6 in June from 50.2 in May. The reading was well above the flash estimate of 50.2.
RTTNews | 7 days ago
Eurozone Inflation Hits ECB Target

Eurozone Inflation Hits ECB Target

Euro area inflation rose slightly to hit the European Central Bank's 2 percent target in June on slower fall in energy prices and the rise in services inflation, flash estimate from Eurostat showed on Tuesday. Annual inflation climbed to 2.0 percent in June from 1.9 percent in May. The rate reached the inflation target and also matched economists' expectations.
RTTNews | 9 days ago