December 4, 2022

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The European Central Bank, raised the new interest rate by 0.75%. Lagarde replied to Meloni (without quoting her): “We’ll do what has to be done.”

Milan – there European Central Bank The wall is also raised against rising inflation. The Board of Directors decided at today’s meeting to raise interest rates by 75 basis points. A decision in line with market expectations. The prime rate rises to 2%, the deposit rate to 1.5%, and the margin lending rate to 2.25%. in his statement European Central Bank More rate increases are expected, and the ECB’s Governing Council expects to “raise rates further to ensure a timely return of inflation to the 2% target over the medium term,” the text reads. and the president, Christine Lagardeholds a point even in the face of criticism from many political leaders, Georgia Meloni Including In his inaugural speech Talk about the “gamble” of tightening the screws as the economy heads into recession. And he answered a question about these criticisms, “We must do what we must do. The central bank has a mandate for price stability and must pursue it by all means.” “Obviously – continued Lagarde – this does not mean that we are ignoring the risks of recession. But we are concerned that low incomes are exposed not only to the risk of recession, but also to the reality of inflation.” “I don’t want to comment on political rhetoric and abstain – I answered the president a second question about Meloni’s remarks – I will just say that we as the central bank have a mandate for price stability, and the thing that worries people is inflation.” Lagarde states that ECB decisions “take time”, and the effects of today’s decisions “will not appear in the coming weeks. But it is our job.”

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Tltro loan rules are changing

The ECB letter also states that the Governing Council “has decided to amend the terms and conditions applicable to the third series of targeted long-term refinancing operations”, the so-called Tltro, and will adjust the interest rates applicable to Tltro3 to start from 23 November 2022 and to introduce additional dates for banks to repay Early voluntary amounts. The European Central Bank also decided to “limit the remuneration to the compulsory reserves held by credit institutions with the euro system at the ECB rate on deposits with the Central Bank, in order to better align this remuneration with money market conditions.”

In her press conference after the announcement of the decision, the President of the Republic Christine Lagarde He explained that the eurozone economy is set to weaken further in the latter part of the year and early 2023. The central bank noted that the labor market “continues to perform well” but that the decline in activity could lead to a “high unemployment rate” in the future. He added that growth risks “clearly trend to the downside, especially in the short term.” Confidence It could exacerbate further, as well as supply bottlenecks.”

“Inflation is still very high and will remain above target for a significant period of time,” Lagarde said. Precisely for this reason, we need to tighten the European Central Bank. Lagarde explained that by significantly raising key interest rates for the third time in a row, the central bank has made significant progress in abandoning the accommodative stance of monetary policy. “The Board made this decision today and plans to raise interest rates further to ensure that inflation returns in a timely manner to the 2% target over the medium term. From time to time at each meeting.” But another step that markets are carefully watching is the launch of quantitative tightening or budget cuts: “In December we will discuss the basic principles of reducing the application portfolio,” which is the purchase of securities. The topic was discussed generally at the last meeting of the governors where it was decided to discuss the details of this portfolio reduction at the next meeting in December.

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To governments, Lagarde made the now usual call: “They should pursue fiscal policies that demonstrate their commitment to gradually reducing high rates of public debt.” And again: “Structural policies should be designed to increase the growth potential and supply capacity of the euro area and strengthen its resilience, thereby helping reduce price pressures in the medium term.”