A series of interest rate hikes will begin in July – a big jump in interest rates may come in September

In addition, the central bank intends to continue raising interest rates at a later date. The magnitude of the September increase will depend on the inflation outlook at the time.

– If the medium-term inflation outlook persists or deteriorates, it is appropriate to do more [kuin 0,25 prosenttiyksikön] increase at the September meeting, central bankers formulate.

Director general Christine Lagarde spoke about the tightening of monetary policy at a press conference. Finland was represented at the meeting by the Governor of the Bank of Finland Olli Rehn.

The ECB is also planning to raise interest rates after September. The bank will have interest rate meetings in October and December this year.

– We consider that a gradual and continuous increase in interest rates is appropriate, the ECB’s press release says.

Central bankers are now painting with a thin string, as too abrupt movements in monetary policy could plunge the economy into a deep recession.

The main task of the ECB is to ensure the stability of the value of money. When inflation rises above 8%, the ECB is effectively forced to tighten monetary policy. At the same time, it is trying to avoid that the tightening of financial conditions does not plunge the eurozone into recession.

– High inflation is a challenge for us all. We will make every effort to ensure that inflation returns to around 2 percent, Lagarde said.

The headache for central bankers is that the ECB has little scope to influence price rises. The rise in energy and food was fueled first by the corona pandemic and now by the Russian invasion war. Supply-side shocks cannot be influenced by the central bank.

– Russia’s attack is eating away at economic growth, but the conditions for economic growth still exist, Lagarde said.

You can read more about the ECB’s decisions in the following list.

For example, Danske Bank predicts that the ECB will raise interest rates six more times in the near future, and Handelsbanken five times.

Many Finnish mortgage debtors are not used to rising interest rates either. The ECB has never raised interest rates for eleven years.

The deposit rate has been negative for eight years. It is paid into funds deposited by banks with the central bank. Its increase is usually passed on to the Euribor reference rate.

Until now, the ECB has always cut interest rates by only 0.25% at a time. If inflation does not slow down in the near future or, for example, wage demands accelerate, the central bank is likely to resort to a larger one-off increase.

Nordea’s chief analyst Jan von Gerich considers the ECB’s interest rate policy to be a significant change.

– Until now, it was thought that the ECB would normalize monetary policy at a slightly slower pace with one-quarter-step increments like this, so now these half-percentage point movements came to the fore, von Gerich said in a video interview.

– Yes, it means that monetary policy is tightening exceptionally fast, at least compared to the background of the last decade.

According to Von Gerich, for example, the 12-month Euribor, which is generally used as a reference rate for mortgages, may be close to 2% at the end of the year.

The ECB will also end its generous support for governments and companies – that is, buying these bonds on the secondary market.

The central bank has already announced that the ongoing purchases of EUR 20 billion in securities will be completed by the end of June. The end of the credit recovery has been a precondition for central banks themselves to be able to start raising interest rates.

However, the ECB – the Bank of Finland is part of the same central banking system – has so far reinvested or “rolled forward” the yields on maturing bonds.

For example, the US Federal Reserve has also abandoned this form of recovery. The ECB now says it will continue to reinvest maturing debt securities until the end of 2024.

As interest rates rise, sovereign debt markets could panic.

For this reason, Lagarde was expected to respond to how to prevent panic and secure the ability of indebted countries such as Italy and Greece to repay their loans.

Some form of support program is needed to secure the market access of heavily indebted eurozone countries in the face of rising interest rates. Indeed, interest rates on Italian government bonds would rise after the ECB’s policy guidelines on Thursday.

According to Lagarde, the central bank is ready to take targeted measures to ensure stability.

– If necessary, we will use either existing or new tools, Lagarde said.

According to him, some central bankers are in favor of targeted subsidies for some countries. Some stress, according to Lagarde, that the debt bought by the central bank should be directed to climate investment.

The ECB also renewed its estimates of future economic developments. It estimates that economic growth will be lower than previously estimated.

While economic growth was estimated at 3.7 per cent in March this year, the forecast has now been reduced by almost one percentage point to 2.8 per cent. Next year, growth will be 2.1 percent.

Until now, the ECB, like other economic forecasters, has underestimated inflation. Now it estimates next year’s price increase rate of 3.5 per cent, compared with only 2.1 per cent in March.

You can discuss the topic on 10.6. until 11 p.m.