Published on Monday, September 12, 2022

Europe | Energy ECB

For the second time in a row, the ECB has struck with aggressive rate hikes, this time by 75 basis points. A magnitude more or less pre-announced in the last few days, when in July the expectation was increasing by 50.

Key points

  • Key points:
  • The developments that have led to this have been a new inflation surprise in August, not huge, but persistent, and an increasingly complicated energy outlook in Europe.
  • While the price of a barrel of oil has moderated due to the risks of a global recession, especially in China, European gas prices have soared due to supply restrictions by Russia (Nord Stream 1 sine die supply cut-off), with the consequent drag on electricity prices and the European Commission's emergency response initiatives.
  • In addition to accelerating rate hikes, President Lagarde made it clear that they will continue at future meetings. As inflation is so far off target and the ECB's 2024 forecast is above 2%, rates still have some way to go.
  • The ECB has also sent a bullish message through its new forecasts, especially regarding inflation, which has raised from 3.5% to 5.5% by 2023, two points in just three months.
  • There are still some tricks up the sleeve. The ECB is focused on using interest rates, as it is the most effective (and proven) tool for its known effects on demand.

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