Euro markedly rose in price in forex on Thursday following the results of the meeting of the European Central Bank, the leadership of which for the first time admitted that the period of high inflation exceeded forecasts.
The Euro jumped against the dollar by 0.8% in just over an hour after the head of the ECB Christine Lagarde, at a press conference, announced that the slowdown in the inflationary surge was postponed to 2022, and in the short term, prices will continue to rise.
At 17.20 Moscow time, the European currency was trading at $ 1.1694 – the highest since the end of September, although before the ECB meeting, it was kept below 1.16.
“The topic of our conversation was inflation, inflation, inflation,” Lagarde repeated three times, answering journalists’ questions about the ECB meeting.
According to her, the Board of Governors believes that the inflationary surge is temporary, although it will take longer than anticipated for it to subside.
Following the meeting, the Central Bank of the euro area left unchanged interest rates and parameters of market transactions. Banks will still receive liquidity in euros at 0% per annum and at 0.25% – on margin lending. The deposit rate at which the ECB places free reserves will remain at minus 0.5% per annum.
The ECB’s “printing press,” which has poured 4 trillion euros into the markets since the start of the pandemic, will continue to operate as before. However, in March 2022, the key program of emergency buyback of PEPP assets with a limit of 1.85 trillion euros, of which 1.49 trillion is involved, will be completed, Lagarde said.
At the same time, the ECB will continue operations under the main APF program, under which the markets are flooded with 20 billion euros per month.
The European Central Bank “woke up from dreams” and “denial of inflation” in its official statements moved to a more balanced approach, says Carsten Brzeski, head of macroeconomics at ING.
The money market quotes the ECB rate hike as early as next September, Bloomberg notes. And although Lagarde bluntly stated that the regulator’s position does not imply such actions, investors do not believe her: the swap quotes suggest an increase in the cost of borrowing by 17 basis points by the end of next year.
The market has something to worry about. German data released Thursday showed that the euro zone’s largest economy’s consumer price index rose 4.5% year-on-year in October, rewriting a 28-year high. In addition, German import prices, including gas and oil, have jumped the most since 1982, while the European Commission’s inflationary consumer worries index has reached unprecedented levels for more than 20 years. While the ECB has little to do against inflation, as it is powerless to force containers to sail faster from China to the West and fix supply chain disruptions, the December meeting is likely to bring a policy reversal, Brzeski said: “If Lagarde was talking about ‘inflation, inflation, inflation,” then next time we will hear “toughening, toughening, toughening.”
