Global markets started the week with Europe’s energy crisis deepening; Risk appetite was also suppressed. The euro continued its weakness, falling to the 0.9877 level against the dollar on today’s transactions, a 20-year low. Energy prices in Europe fluctuated wildly over the week. Russian energy company Gazprom announced Friday that it has indefinitely suspended natural gas supplies to Europe through the Nord Stream pipeline; In a written statement, the company said that a turbine at Nord Stream that entered maintenance on Aug. 31 and is expected to return to service has been found to be malfunctioning.
While the energy crisis in Europe increased concerns about the regional economy; increased threats of slowing growth and pressure on inflation. While inflation is expected to continue rising as energy prices rise; On the other hand, recession concerns are increasing. In such an environment, it is questionable how the European Central Bank (ECB) will track interest rate hikes… The ECB interest rate decision will be announced on Thursday at 15:15 Turkish time. As economists expectations rise like 50 basis points, 75 basis points and 100 basis points; Looking at market prices, a rate hike of 75 basis points seems more likely.
class=”medianet-inline-adv”>
Above all, the effects of interest rate increases on rising inflation and growth figures are observed. In the event of an expected interest rate hike by the ECB, no drastic movements on the markets are to be expected as this is priced in in advance. However, if a rate hike comes in above expectations, risk appetite in global equity indices could slow and we could see depreciation. The euro, on the other hand, could be relatively stronger. In a scenario where the situation in Europe could deteriorate, the depreciation of the euro could deepen.
The last meeting of the European Central Bank took place on July 21st; The bank had raised interest rates for the first time in 11 years. At the ECB meeting in July, it raised the key interest rate by 50 basis points above market expectations, thus ending the phase of negative interest rates and lowering the key interest rate to 0 percent.
class=”medianet-inline-adv”>
INFLATION CONTINUES TO RISE
Inflation figures continue to rise in the European Union (EU) and the Eurozone. As a result; In the euro zone, which has 19 member countries, inflation rose to 9.1 percent on an annualized basis in August, renewing its all-time high. Inflation records in the Eurozone were kept from 1997; this figure is the highest on record… In the European Union, which comprises 27 member states, annual inflation was 9.8 percent in July.
The increase in inflation is being driven by increases in staple foods and energy products.
SHOULD THE ECB INCREASE INTERESTS UNDER THESE CONDITIONS?
Yusuf Kavak – strategist
class=”medianet-inline-adv”>
As the energy crisis between Russia and Europe deepens by the day, attention remains focused on the European Central Bank’s (ECB) monetary policy meeting to be held on Thursday, September 8th. If we recall, with the decisions made at the last monetary policy meeting on July 21st; While the bank’s interest rates were raised by 50 basis points, this rate hike, which came after 11 years, opened the door for rate hikes for the next few meetings. ECB also to mitigate the impact of rate hikes as much as possible; Activating the new Transfer Assurance Mechanism, an anti-crisis borrowing instrument, it was explained that the magnitude of the next interest rate decisions will be decided on a meeting-by-meeting basis. Referring to the September meeting, ECB President Lagarde said: “The previous oral guidance for September is no longer valid, the ECB will decide month by month according to the incoming data and will be adjusted according to the medium-term inflation target of 2%. “
class=”medianet-inline-adv”>
DATA DISRUPTIONS CONTINUE
Let’s look at the process from the July meeting to today; First of all, we see that corruption is going on in a lot of data. On the other hand are the inflation rates that form the basis for rate hikes; As this surged to new record levels, it became imperative for the ECB to hike rates despite other macro data beginning to worsen. At least that was the case until last week.
However, from the middle of last week; While the decisions of the G7 countries to impose a price cap on Russian oil and natural gas caused a stir, it became inevitable at the beginning of the new week before the ECB meeting after the Russian side declared: Until the sanctions are lifted , no natural gas will flow from the Nord Stream 1 pipeline.
class=”medianet-inline-adv”>
THAT THE ECB’S TASK WILL BE MADE EVEN MORE DIFFICULT
With the latest developments; The fact is that the work of the ECB is becoming increasingly difficult. So much so that in Europe, where Russia is shutting down gas supplies earlier than expected, the possibility of a recession is beginning to increase, while rapidly rising energy prices and inflation rates are expected to reach much higher prices. Here the ECB’s dichotomy between growth and inflation is becoming more acute. Because now the question arises: “By how many basis points should the ECB raise interest rates?” instead of “Under these circumstances, should the ECB raise interest rates?”
ECB SHOULD KEEP RATES STEADY
So, under these circumstances, should the ECB really hike rates? First of all, it is an undeniable fact that with Russia’s decision to cut off the flow of gas, risks to growth and inflation have increased significantly. Also, even if the ECB hikes rates; These risks are not mitigated. That is, the purpose of the ECB’s rate hikes; Although the aim of other central banks is to ensure price stability through demand, as the energy crisis has supply-based implications; The rate hikes by the ECB will be ineffective against inflation under these conditions.
If you’re asking my opinion, for these reasons the ECB should leave rates unchanged at this meeting and monitor the impact of supply risk for a while. In case the showdown with Russia comes to an end in the future; In the extraordinary meeting and, if necessary, in the following meetings, it should continue to fight inflation, if necessary with higher interest rate hikes. So much so that the annual CPI rate, which rose to 9.1 percent in the latest data; Incidentally, with the extremely rising energy prices such as natural gas and electricity, it will be in double digits.
IT CAN GET MORE DIFFICULT
However, the ECB; The psychological effect of the delay in rate hikes compared to the US Federal Reserve (Fed) and the purpose of defending the value of the euro, which is melting day by day (it shouldn’t have such a main purpose. Furthermore, in the Italian elections that will take place on 25 will raise interest rates with a populist approach; In any case, nothing will change on the inflation front. On the other hand, it would not be surprising if the ECB makes a rate hike of 50 or 75 basis points on September 8. However, the impact on price stability is neutral or even ; In an environment where the impact of the energy crisis on growth is expected to worsen, it’s also possible that there is a move that complicates things!
THIS VIDEO MIGHT BE INTERESTED
#Eyes #critical #decision #euro #react
No comments:
Post a Comment