ECB raises rates by 75 bps but expects to avoid recession

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Euronext NV is keeping flat on Thursday even after the European Central Bank lifted its key interest rates by 75 basis points.

Further rate hikes are expected

Last week, consumer prices were reported up 9.10% on a year-over-over basis in August. The central bank said:

We expect to raise interest rates further because inflation remains far too high and is likely to stay above target for an extended period.

ECB now forecasts inflation to average at 8.1% this year and remain still at 5.5% in 2023.

“Energy” continues to be the biggest driver of inflation in the eurozone. Earlier this week, Putin indefinitely suspended gas supply to Europe in response to its punitive sanctions against Russia (read more), thereby painting a rather concerning picture of inflation for the coming winter.

Baseline outlook is still not for a recession

Interestingly, though, the European Central Bank remains convinced that it will be able to avoid a recession (baseline outlook).

On the downside, though, if Russia completely shuns Europe of its energy, it added, the region’s economy could contract 0.9%, not this year, but in 2023. Willem Sells – Global Chief Investment Officer at HSBC said:

Gas prices have been rising sharply and the ECB is concerned that rising inflation leads to higher wage demands, which could make inflation pressures stickier. Monetary policy acts with a lag, and ECB governors may have judged that it’s better to front-load rate hikes and to finish hiking by the end of the year.

Euronext is now down over 20% for the year and the “Euro” has slid under 99 dollar cents for the first time in two decades.

The post ECB raises rates by 75 bps but expects to avoid recession appeared first on Invezz.

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