European Central Bank to Ease Up on Interest Rate Hikes?
On Tuesday, newly released data indicated that inflationary pressures in the eurozone may be subsiding somewhat.
This development could potentially slow the European Central Bank’s efforts to increase interest rates. Although headline inflation increased to 7.0% primarily due to high food and service prices, core inflation – which excludes volatile food and energy components – fell in April for the first time in 10 months to 5.6%.
While still more than double the ECB’s medium-term target of 2 percent, this figure could prompt the bank to ease up slightly at the upcoming governing council meeting. ECB board member Isabel Schnabel has previously stated her preference for a “sustained” decline in core prices before changing course. Still, the gradual decrease in inflation bolsters the argument that another interest rate hike on Thursday may not be as probable.
On the day of its release, the ECB’s Bank Lending Survey for the quarter added weight to the argument in favor of caution. The survey revealed that banks are now more careful about lending, with credit standards being tightened at the swiftest pace seen since the eurozone’s sovereign debt crisis ten years ago.
Housing markets are losing momentum due to rising interest rates, and the U.S. and Switzerland have experienced a series of bank failures. As a result, lenders anticipate that they will tighten their standards once more in the next quarter.
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According to the European Central Bank (ECB), there has been a significant decrease in loan demand in the past quarter. Private-sector credit growth also slowed to 5.2% in March, its slowest rate in almost a year. The growth of the broad M3 money supply has also decreased, reaching a nine-year low of 2.5%.
Although core inflation remains strong, it is less likely that there will be a significant interest rate hike at the upcoming meeting. Nomura analysts predict that the ECB will use this tightening as evidence of the effectiveness of their monetary policy decisions.
They also anticipate a downshift to rate hikes of only 25 basis points.
ECB Chief Economist, Philip Lane, has described the Bank Lending Survey as a crucial data point leading up to the May meeting. This survey will help determine whether credit conditions have been further tightened.
Alexander Stefanov
Reporter at CoinsPress
Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.
