Europe's eight-year era of negative interest rates has officially come to an end.
The European Central Bank raised interest rates for the first time in more than a decade, and raised interest rates by half a percentage point in one go, exceeding market expectations.
Some big banks believe that this move shows that the European Central Bank is determined to fight inflation and does not want to repeat the mistakes of the US Federal Reserve's indecision.
However, the current economic situation in Europe is more complex and volatile than that of the United States, including the energy crisis in Russia and Ukraine, the political changes in Italy, and the disparity in the financial strength of countries in the region.
The current inflation problem in Europe is on a par with that of the United States, and the Federal Reserve started its interest rate hike cycle as early as March this year, raising interest rates by 1.5% in less than four months.
As for Europe, after the outbreak of the Russian-Ukrainian war in March this year, affected by the double rise in food and energy prices, the latest euro zone inflation has soared to 8.6%, a record high since the establishment of the euro, compared to about 5% at the beginning of this year. Inflation, price pressure can be described as a "runaway" rise.
Faced with rising inflation without an upper limit, the European Central Bank finally raised interest rates, marking the first time Europe has raised benchmark interest rates after a decade after the European debt crisis.
Since the European Central Bank stopped its stimulus plan to buy bonds as early as early July, paving the way for this rate hike, the market had already fully anticipated the rate hike before the interest rate meeting.
The euro fell below the "1:1" parity level against the dollar this month for the first time in two decades.
(Getty Images)
However, this rate hike still brought two surprises to the market.
The first surprise was the magnitude of the rate hike.
According to the original European Central Bank's interest rate forward guidance, it is planned to raise interest rates by 0.25% first this month, and then increase the interest rate by 0.5% in September.
The direct rate hike this time is 0.5%, which is twice as high as the original expectation. It is completely different from the Fed’s practice of “testing the water temperature” when it first raised interest rates by 0.25% in March this year.
Regarding the rate of interest rate increase, the CICC report pointed out that this move shows that the European Central Bank has a firm will to fight inflation and does not want to repeat the mistakes of the Federal Reserve's indecision.
According to European Central Bank President Christine Lagarde (Christine Lagarde) at a press conference, the resolution has the support of all members.
Looking back at Bloomberg's earlier news, we will find that this time the European Central Bank has obtained all members unanimously to raise interest rates by 0.5%, which is believed to have experienced a heated discussion.
Foreign sources pointed out that ECB officials initially tended to support a rate hike of only 0.25% at the meeting, considering factors including the affordability of countries in the region, especially those with high debt.
However, because the European Central Bank launched a new tool at the same time, called the Transmission Protection Tool (TPI), which aims to prevent member bond interest rates from rising sharply, members finally reached a consensus to raise interest rates by 0.5%.
[ECB raises interest rates] The European debt problem is about to come?
[ECB raises interest rates] European debt crisis 2.0 brewing?
This new tool launched by the European Central Bank in order to achieve consensus among member states and resolve the concerns of all parties can be understood as a bond purchase plan of the European Central Bank. When a member state's debt interest rate is unreasonably high, the European Central Bank will buy the bond. The policy objective is to counter unwarranted and disorderly market adjustments to prevent these extreme market dynamics from posing a serious threat to monetary policy transmission across the euro area.
It is worth noting that the bond purchase quota, according to the central bank's description, "the size of the purchase of TPI will depend on the severity of the risk to monetary policy transmission, and there is no prior purchase limit (Purchases are not restricted ex ante)."
Therefore, the ECB's interest rate hike policy this time is actually to raise interest rates while buying bonds to release liquidity to the market and prevent countries with heavy debt burdens such as Italy and Greece from suffering too much pressure from rising debt interest rates.
Wen Zhuopei pointed out that the so-called new tool launched by the European Central Bank this time seems to be "old wine and new bottle".
(Photo by Zhang Haowei)
Regarding the new tools, Hang Seng Bank chief market strategist Wen Zhuopei pointed out in an interview that the so-called new tools this time seem to be "new bottles of old wine", because the European Central Bank's bond-buying program in the past has always been to increase capital investment Purchasing bonds from high-debt countries in southern Europe, and less on government bonds from countries with high fiscal strength, such as Germany, aims to narrow the financial cost gap faced by countries with different fiscal strengths in the region.
CICC believes that TPI's operational details are relatively vague, which can be described as "intentional ambiguity", leaving more room for independent decision (discretion) for future risks.
On the whole, the central bank is more "hawkish" than the market expects in raising interest rates to fight inflation, highlighting the difficult balance between inflation risk and debt risk for the European Central Bank, and greater policy flexibility will also lead to greater asset prices. fluctuation.
For details, please read the 327th issue of "Hong Kong 01" e-weekly report (July 25, 2022) "
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