Multiple economic troubles are limited by the European Central Bank's policy space

Xinhua News Agency, Frankfurt, July 21 (International Observation) Multiple economic troubles to the European Central Bank's policy space are limited

Xinhua News Agency reporter Shao Li Shan Weiyi

The Central Bank of China announced on the 21st that the three major interest rates of the euro zone were raised by 50 basis points to ensure that the meter inflation rate in the euro zone was lower than 2%. This is the first time the European Central Bank has raised interest rates since 2011. Experts believe that the current euro zone is facing multiple problems such as high inflation, high debt, weak euro and energy crisis. The economic prospects are dim, and the European Central Bank's future monetary policy space is limited.

Stock greater than expected

The European Central Bank issued an announcement on the same day that starting from the 27th of this month, the main reconstruction interest rates, marginal loan interest rates and deposit mechanism interest rates were raised to 0.5%, 0.75%and zero, respectively. The interest rate hike is higher than market expectations. The European Central Bank announced on June 9 that it plans to raise interest rates in July 25 basis points.

Since this year, under the influence of many factors such as the Fed's negative spillover effect and the spread of the European energy crisis, the inflation data of the euro zone has continued to rise. The US dollar exchange rate has continued to decline, and the lowest point has recently fallen to the lowest point in 20 years, which has led to a sharp increase in pressure from the European Central Bank. In order to prevent the inflation from further deteriorating and maintaining a stable euro exchange rate, the European Central Bank was forced to start the first interest rate hike for more than ten years.

The European Economic Research Center economist Friedrich Heineman believes that the European Central Bank has decided to take a big step in interest rates, which is good news.

Nevertheless, the pace of interest rate hikes in the European Central Bank still lags behind the Fed. The Federal Reserve has raised interest rates three times this year, with a cumulative increase of 150 basis points, and the market generally estimates that the Fed will raise interest rates at least 75 basis points by the end of July.

Marbrook Shenna, chief investment strategist of French Foreign Trade Bank Investment Management Corporation, said that the gap between the European Central Bank and the Federal Reserve's interest rate hike will bring further downward pressure on the euro.

Extruded debt burden

Market participants pointed out that the European Central Bank's interest rate hikes will raise the cost of national financing in the euro zone, leading to the expansion of the spread of bonds in some member states and exacerbating the pressure on the debt repayment of high debt countries.

Before the interest rate hike, the euro zone determined that the yield of sovereign bonds of the long -term interest rate benchmark for the market had long risen with the pace of aggressive interest rate hikes in the United States. Italy's 10 -year Treasury yield rate rose to 4.19%in mid -June, a new high in 8 years. At that time, its risk premium level (the spread with German government bonds) was close to the high position at the beginning of the new crown epidemic.

The significant increase in the cost of heavy bonds' bonds will cause investors to panic in the European debt crisis again, bringing a drama of the financial market in the euro zone. This made the European Central Bank have to launch a new "anti -fragmentation tool" at the same time to ensure that its monetary policy is smoothly transmitted to all member states. When the premium risk of national bond yields in a euro zone risks sharply, the European Central Bank will use this tool to purchase the country's bonds to prevent the rise in financing costs and cause debt crisis.

The European Central Bank said that the scale of using new tools to purchase debts will depend on the severity of policy transmission risks. The European Central Bank governor Lagarde emphasized in response to reporters on the 21st that if it is necessary to use this new tool, the European Central Bank "will not hesitate."

Michael Holstai, chief economist at the Central Cooperation Bank of Germany, said that a new tool was launched to support the euro zone country with liabilities, which may be a compromise.

Restricted policy space

Some analysts pointed out that the negative overflow effects of strong US dollar and US tightening monetary policy are spreading to Europe and putting the economic pressure on the euro zone. The sharp interest rate hike in the European Central Bank may exacerbate the risk of economic recession, which means that in the future, it will fall into a dilemma.

In May this year, the European Commission reduced the expected EU economic growth expectations to 2.7%and 2.3%respectively. In the middle of this month, the European Commission further reduced the growth expectations next year to 1.5%. Eric Wesmann, chief economist at the US Fund Corporation, warned that the European economic situation is very difficult and the rising energy price rises means huge actual income loss.

Casten Bujesky, head of the Macro Research Department of the Dutch International Group, pointed out that the window of the European Central Bank's interest rate hike cycle may be quickly closed due to an eyebrows.

Wells Fargo analysts predict that the European Central Bank is unlikely to raise interest rates by 50 basis points. The interest rate hike cycle will end in the first quarter of next year, and the deposit interest rate is expected to be only 0.75%.

The analysis of Japan's Mitsubishi Ri Lian Bank believes that, in view of the risk of a significant slowdown in the economic growth rate of the euro zone, the European Central Bank's interest rate hike measures are unlikely to last until the first quarter of 2023.

[Editor in charge: Xue Tao]

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