The European Central Bank (ECB) will not raise interest rates from their current -0.50 percent next year, bank president Christine Lagarde said in 27 October comments quoted by The Wall Street Journal.
She acknowledged that Eurozone inflation’s pace had sped to an overall 3.4 percent in September and that higher prices would last longer than the bank previously had expected.
However, inflation will fall into the bank’s 2-percent target zone in 2023, she predicted, although several economists disagree, the Financial Times noted.
Germany’s October inflation rate spiked to a 28-year-high 4.6 percent; Spain’s notched a 37-year record 5.5 percent.
The zone’s inflation rate will edge up to 3.7 percent for October, analysts have forecast, which would be the highest rate since 2008.
However, after “doing a lot of soul-searching” about its view that inflation will ease next year, the bank’s policy committee decided to leave policies unchanged.
Lagarde also continued to insist that rising inflation is temporary.
Investors sold Eurozone bonds as Lagarde spoke, indicating a lack of conviction that the bank would be able to hold interest rates that low for that long, the WSJ said.
Yields on Italy’s 10-year bond rose above 1 percent for the first time since August.
Bond rates rise when bond prices fall, because investors charge a higher return for investing in an asset with a rising risk.
Also, the euro rose 0.5 percent against the dollar.
Markets are pricing in the expectation of rates rising out of negative territory by next September, according to the FT.
The ECB’s insistence on holding firm to low rates leaves it at odds with other central banks.
The U.S. Federal Reserve has given clear signs that interest rates will rise at least once next year, possibly as many as three times.
On 27 October, Canada’s central bank signaled that it could raise rates as soon as April and that inflation is likely to remain above the bank’s 2-percent target through 2022.
The Bank of England also could raise rates soon to challenge inflation, governor Andrew Bailey said last month.
TRENDPOST: Dragflation—speeding inflation and slowing economies— poses a dilemma for central banks.
The Banksters want to maintain stimulus programs, such as negative interest rates, to artificially inflate the economy and keep equity markets rising. Indeed, they are fully aware that once the cheap money flow dries up, the Greatest Depression will spread across the continent.
Again, as we have noted, “temporary” inflation became “transitory” inflation; now the bank has to keep rates low to keep markets and economy from tanking despite real inflation really rising.
TREND FORECAST: Europe’s central bank has held its base interest rate below zero for seven years and as we have reported, it’s top economy, Germany, was drifting into recession before the COVID War began.
Now the bank is stuck with the dilemma: continue to hold interest rates low to artificially prop up the economy that still has a long slog ahead, or raise rates to lasso inflation in a move that will spin the continent back into recession by making borrowing too expensive for businesses and households?
We maintain our forecast made in “ECB: More Monetary Methadone” (27 Apr 2021): while there will be a sharp bounce-back as the COVID War winds down, future European Union growth will trend toward moderate and negative in the coming years and when rates rise to the 1 percent range, the economy and equities will tank.