European Central Bank raises rates by 50 basis points, pledges further hike in March

[BumRushDaShow]

Last edited Thu Feb 2, 2023, 11:24 AM - Edit history (1)

Source: CNBC

The European Central Bank on Thursday confirmed expectations of a 50 basis point interest rate increase, taking its key rate to 2.5%.

In a statement, it pledged to “stay the course in raising interest rates significantly at a steady pace” and, in unusually firm language, said it intended to hike by another 50 basis points in March.

It said keeping rates at restrictive levels would control price rises by dampening demand. Decisions at future meetings will be data-dependent, it added.

Markets appeared to take the announcement as a sign that the end of rate rises was in sight, climbing 1.3% on the day. The move follows four hikes in 2022 which brought euro zone rates out of negative territory for the first time since 2014.

Read more: https://www.cnbc.com/2023/02/02/european-central-bank-raises-rates-by-50-basis-points-pledges-further-hike-in-march.html

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Article updated.

Original article -

The European Central Bank on Thursday confirmed expectations of a 50 basis point interest rate increase, taking its key rate to 2.5%.

In a statement, it pledged to “stay the course in raising interest rates significantly at a steady pace” and, in unusually firm language, said it intended to hike by another 50 basis points in March.

It said keeping rates at restrictive levels would control price rises by dampening demand and keeping inflation expectations under control. Decisions at future meetings will be data-dependent, it added.

The move follows four hikes in 2022 which brought euro zone rates out of negative territory for the first time since 2014.

[bucolic_frolic]

1. That's what our Fed should be doing, raising while things are good so they have room

to cut when things turn bad. Powell is a dimwit.

[dutch777]

2. Yes, the only 25 basis point hike yesterday by the Fed was the wrong message

Bad enough the Fed was a year late starting to raise rates but continuing to be weak kneed now is another mistake.

[BumRushDaShow]

3. Europe is actually in worse shape than we are

and you could tell in one respect, by the value of the currency, to the point where the Euro and the Pound were at or near parity with the U.S. dollar (and are still near that point today).



https://www.imf.org/en/Blogs/Articles/2022/10/14/how-countries-should-respond-to-the-strong-dollar

How Countries Should Respond to the Strong Dollar
Policy responses to currency depreciation pressures should focus on the drivers of the exchange-rate moves and signs of market disruptions

Gita Gopinath, Pierre-Olivier Gourinchas
October 14, 2022

The dollar is at its highest level since 2000, having appreciated 22 percent against the yen, 13 percent against the Euro and 6 percent against emerging market currencies since the start of this year. Such a sharp strengthening of the dollar in a matter of months has sizable macroeconomic implications for almost all countries, given the dominance of the dollar in international trade and finance.

While the US share in world merchandise exports has declined from 12 percent to 8 percent since 2000, the dollar’s share in world exports has held around 40 percent. For many countries fighting to bring down inflation, the weakening of their currencies relative to the dollar has made the fight harder. On average, the estimated pass-through of a 10 percent dollar appreciation into inflation is 1 percent. Such pressures are especially acute in emerging markets, reflecting their higher import dependency and greater share of dollar-invoiced imports compared with advanced economies.

The dollar’s appreciation also is reverberating through balance sheets around the world. Approximately half of all cross-border loans and international debt securities are denominated in US dollars. While emerging market governments have made progress in issuing debt in their own currency, their private corporate sectors have high levels of dollar-denominated debt. As world interest rates rise, financial conditions have tightened considerably for many countries. A stronger dollar only compounds these pressures, especially for some emerging market and many low-income countries that are already at a high risk of debt distress.

In these circumstances, should countries actively support their currencies? Several countries are resorting to foreign exchange interventions. Total foreign reserves held by emerging market and developing economies fell by more than 6 percent in the first seven months of this year.

(snip)

Similarly - https://econofact.org/the-strong-dollar-and-the-war-in-ukraine

A lot of this is not only pandemic-related but also Ukraine-Russia war generated - particularly because Europe staked so much of their energy needs on Russia and their grain and other related foodstuffs commodity needs on Ukraine. Those 2 countries became "single points of failure".

We are in a freakish economic set of circumstances where "traditional" schools or thought or methods are not going to always apply to correct the problem, the model makers are loathe to admit it, and still refuse too consider being in uncharted territory (just like the election poll aggregators and their "models" ).

[IronLionZion]

4. Europe's rates are lower than ours

US is doing smaller increases, Canada stopped increasing for now.

The US rate is 4.5%-4.75%. Europe is 2.5%