The Brief: European Central Bank (ECB) president Christine Lagarde announced that interest rates need to increase at a fast pace to get inflation contained at 2%. This comes after the ECB raised its rate at 75 basis points instead of the usual 25 basis-point hike earlier in the month. At 12 pm today, Bank of England (BOE) governor Andrew Bailey will be announcing the expected benchmark lending rate increase and the BOE’s plan to sell more bonds.
Why It Matters: Interest rate hikes are used to suppress inflation but if it is too aggressive, it may result in severe recession as warned by the World Bank. US rate hikes also raise the cost of its exports due to a stronger dollar and a more aggressive Federal Reserve stance. Furthermore, other central banks tend to mirror the Fed’s move, which is what the World Bank is cautioning against.
Finanze® Foresights: As mentioned in our previous posts, we’re expecting a hike of about half percentage point by the BOE, however, this could be higher if the central bank’s board, composed mostly of hawkish members, heeds a faster pace of monetary tightening. Truss and the BOE need a soft landing given their fiscal and monetary policies working together. But this could prove to be difficult since the effects of these market interventions come with painful consequences.
---
To the fullest extent permitted by law, Finanze Ltd are not responsible for any errors or omissions in any statements, views, opinions, facts, figures, commentary or any other material in the articles contained herein, or for loss arising from its use or performance, or for the results of any actions or lack of action taken on the basis of information provided in articles.
The topics covered in articles are complex and do not substitute the need for financial, legal, accounting, tax and other advice before making any decisions or taking any action based on information in articles.