21 July 2022
If you are covering the latest ECB decision, please see the following comment from Hinesh Patel, portfolio manager at Quilter Investors:
“The European Central Bank has at long last joined the rate hike club with this afternoon’s 50 basis point increase – the first ECB interest rate rise for 11 years. The move was bigger than the 25 basis points hike the ECB had previously planned, though this comes as no surprise given runaway inflation. A larger rate rise was already penned in for September should the need arise and this is now all but confirmed.
“However, the ECB is pushing on a string with rate hikes that will do little to quell what is predominantly an energy crisis. The ECB has waited far too long relative to the Fed and the Bank of England, thereby creating additional pressure on the EUR which is adding to inflationary pressure. The stall in industrial activity indicates that this rate hike is likely to have minimal impact. Headline inflation is now creeping into core which will be gravely concerning to the ECB, especially as costs now represent the most pressing problem for corporates in the region – particularly for the likes of Italy.
“Inflation is a major issue and will be for some time yet and the balancing act faced by the ECB remains a difficult one. The bloc is faced with inflationary shock combined with ongoing uncertainty driven by the war in Ukraine, but the ECB’s previous inaction means today’s rate hike could well be too little too late.”
