Will European interest rates rise in 2022?
By The Forex Review - 18 / February / 22 539
Dominick Bell
Capital market rate rises rapidly after ECB keeps option rate hike open
Inflation has been at a very high level for months. Many central banks have responded to this by raising interest rates or indicating that this will happen soon. Until recently, the European Central Bank did not want to know about a rate hike. But yesterday, the ECB's tone on high inflation was more concerned than before.
ECB president Christine Lagarde hinted at a monetary policy adjustment in the coming months during the press conference. As a result, European market interest rates - including Dutch capital market interest rates - rose significantly.
Inflation is rising significantly
In almost every country in the world, inflation has been increasing. The main reasons are the sharply increased energy prices and the shortages on all kinds of raw materials and products.
Inflation Netherlands
The Dutch inflation rate (CPI) has also been higher in recent months than it has been in a very long time.
The Dutch CPI for January is not yet known, but it is expected that it will be even higher than the 5.7% of last december.
Inflation temporarily?
Normally, central banks often raise interest rates when inflation is higher than "standard". Internationally, we see that many central banks have also raised interest rates. The ECB did not consider a rate hike necessary so far. Until november last year, the ECB's message was that high inflation was "transient". In december, the ECB's tone was somewhat less firm, and yesterday the tone was particularly concerned. It is clear that the ECB has underestimated inflation.
The chance of an interest rate increase has increased considerably. The next ECB meeting is in March and it will be very important. At that meeting, the new inflation expectations for the coming period will be announced. The ECB's policy for the coming period will also be determined accordingly.
Capital market rates skyrocket
The Dutch ten-year interest rate (the capital market rate) showed a significant increase yesterday. Interest rates closed at 0.266% yesterday - the highest level in a long time.
Thus, the interest rate markets already seem to be anticipating a future ECB rate hike.
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