The European Central Bank’s sharp interest rate hike is difficult to change the euro’s decline
Xinhua News Agency, Frankfurt, September 9th(International Observation) The European Central Bank’s sharp interest rate hike is hard to change the euro’s decline
Xinhua News Agency reporter Shao Li Shan Yiyi
The European Central Bank announced on the 8th that it would raise the three key interest rates in the euro zone by 75 basis points, which is the largest rate hike since the introduction of the real euro currency in 2002. However, the decision to raise interest rates did not effectively boost the euro exchange rate. Observers pointed out that due to the lingering energy shortage and high inflation concerns, the economic prospects of the euro zone are not good, and the interest rate hikes in Europe and the United States are not synchronized, so it is difficult for the euro to change significantly in the short term.
There are three key messages in the announcement issued by the European Central Bank on the same day: First, the European Central Bank has once again substantially raised its inflation forecast for the euro zone, and the inflation rate this year and next is expected to reach 8.1% and 5.5% respectively, both of which are much higher than the target of 2%; Second, the European Central Bank judges that the economic growth in the euro zone will slow down and may stagnate, and the economic growth rate will drop from 3.1% this year to 0.9% next year; Third, the European Central Bank believes that the depreciation of the euro will further aggravate inflation.
When answering a reporter’s question on the same day, European Central Bank President Lagarde said that the rate hike of 75 basis points is not normal, but if necessary, the European Central Bank will continue to raise interest rates substantially.
Carsten Bresky, head of macro research department of ING, pointed out that the decision of the European Central Bank to raise interest rates this time is a historic move, indicating that the influence of doves in decision-making has been greatly weakened, and it is expected to raise interest rates by 75 basis points before the end of the year.
However, after a sharp interest rate hike, many institutional investors are still bearish on the euro. Analysts believe that the European Central Bank has stepped up its efforts to raise interest rates, but the pace is still far behind that of the Federal Reserve. The gap between the European Central Bank and the Federal Reserve in raising interest rates will bring downward pressure on the euro.
Dominion Securities of Canada believes that raising interest rates by 75 basis points can only moderately support the euro in the short term, and the prospect of European energy crisis is also a key factor to determine the future trend of the euro.
The European Energy Exchange in Leipzig is currently trading electricity delivered next year at a price of about 500 euros per megawatt hour. Previously, this price had risen to 800 euros per megawatt hour. Last summer, the price was around 80 euros per megawatt hour.
The German Federation of Industry released a survey of nearly 600 enterprises on the 7th. More than 90% of the enterprises surveyed said that the rising prices of energy and raw materials may endanger their survival or bring major challenges. One fifth of the enterprises surveyed are considering moving some or all of them abroad; Nearly one in ten enterprises stopped or reduced their production in Germany.
The Institute of World Economics in Kiel, Germany, recently released an economic forecast that Germany’s GDP is expected to shrink by 0.7% in 2023. The agency said that the impact of the energy crisis has just begun and will not be fully manifested until next year. The sharp rise in energy prices is dragging the German economy into recession.
Michael Holstein, chief economist of the German Central Cooperative Bank, said that the record rate hike came too late, and the European Central Bank would have to risk the possible deterioration of the economy to slow down inflation.