The week starts in the knowledge of yet another rate hike. While interest rates rise for the Euro and Dollar, the gradual depreciation of Turkish lira does not go unnoticed.
As expected, the ECB increased the rates by 75 basis points, emphasizing that they will quite possibly push the rates higher, and that inflation is still very high and will remain above the target rate for a long time.
This goes to show that the European Central Bank will hike interest rates in the upcoming meetings while keeping an eye on the economic growth. Entering a recession period without fully bringing inflation under control, given the current circumstances, would be quite misfortunate indeed, not to mention how it would damage Turkey’s export performance.
The ECB has also shared its growth expectations, projecting an increase from 2.8% to 3.1% in the euro area for 2022, while decreasing the expectation for 2023 from 2.1% to 0.9%, and for 2024 from 2.1% to 1.9%. As of next year, European economy will be in for some big challenges ahead. And everyone seems to have accepted this.
Meanwhile, the 2022 inflation forecast of 6.8% has been pushed to 8.1%, that for 2023 rose from 3.5% to 5.5%. In short, it is expected that there will be a slight decline in inflation vis-à-vis a growth slowdown.
“The Danger Will Not Go Away Soon…”
ECB President Christine Lagarde released a press statement after the decision, reminding that they have a long road ahead in their fight against inflation, which they expect to regress over time. Expressing that high energy prices weakens the purchasing power and causing great difficulties to companies, Lagarde has also pointed out energy is still the biggest source of inflation.
Lagarde said that she is seeing growth and inflation problems in the short term, but she did not give a definite clue on how much the ECB would raise its policy rates. Apparently, the European Central Bank will continue to hike rates until it is sure that it has stopped inflation, in which case the fluctuations in exchange rates will become a part of our lives.