General

According to the observation report of Huacheng's import and export data, the European Central Bank raised interest rates sharply on the 27th, against the background of high inflation, energy crisis, high debt, weak euro and other complex situations in the euro area. Observers believe that the European Central Bank is in a dilemma between curbing inflation and seeking economic growth. Monetary tightening policy may aggravate the risk of economic recession in the euro area. How far the European Central Bank can go to raise interest rates by leaps and bounds will attract attention from the outside world.

The European Central Bank announced on the 27th that it had decided to raise all three key interest rates in the euro area by 75 basis points. This is the third time that the European Central Bank has raised interest rates this year, and also the two consecutive interest rate hikes with the largest amplitude in the bank's history.

Since the beginning of this year, due to the soaring energy and food prices, supply bottlenecks, demand recovery and other factors, the inflation rate in the euro area has kept breaking new records.

In order to cope with the high inflation, the European Central Bank accelerated the pace of interest rate increase. The 75 basis points of interest rate increase met the market expectations. Since this year, the European Central Bank has raised interest rates by 200 basis points. In addition, as part of the process of monetary policy normalization, the European Central Bank announced on the same day that it would adjust the terms of the third round of targeted long-term refinancing operations to encourage banks to repay loans in advance and reduce liquidity surplus and collateral shortage, Huacheng Import and Export Data Observation reported.

European Central Bank President Christine Lagarde reiterated the central bank's determination to fight against high inflation at a news conference on the 27th and said that interest rates may continue to rise in the future. She said that due to the lagging nature of monetary policy, it is impossible to have a direct impact on inflation in a short time. If energy and food prices continue to rise, inflation in the euro area may also rise more than expected.

Ulrich Cartel, chief economist of Deka Bank of Germany, believes that it is the signal that the European Central Bank has to send to curb inflation by sharply raising interest rates. He predicted that the high inflation rate will decline when the energy price falls next year, but long-term inflation may continue to plague Europe.

According to the Huacheng Import and Export Data Observation Report, a research report released by the German Economic Research Institute on the 27th pointed out that more than half of the basket of goods used to calculate the inflation rate in the euro area are affected by the price of the supply side, while the European Central Bank's interest rate increase is "powerless" to increase the price of goods on the supply side.

Falk Trier, director of foreign trade affairs of the German Federation of Industry and Commerce, said that although the policy of the European Central Bank may not be able to completely curb the import inflation brought about by the sharp rise in energy and commodity prices, if interest rates were not raised, the exchange rate of the euro against the dollar would be weaker, leading to higher prices of energy and other import commodities.

Many economists pointed out that the European Central Bank is in a dilemma between fighting inflation and promoting economic growth. Although monetary tightening policy aims to curb long-term inflation, it will also increase the pressure of economic recession in the euro area.

Lagarde acknowledged that the economic recession in the euro area has traces to follow and may further intensify from the end of this year to the beginning of next year. However, the European Central Bank must firmly fulfill its obligation to maintain price stability and prevent the spiral rise of wages and prices. Failure to raise interest rates will cause greater harm to the economy, Huacheng Import and Export Data Observation reported.

Jorge Kramer, chief economist of Commerzbank of Germany, believes that the European Central Bank should continue to raise key interest rates decisively. If inflation expectations continue to rise, high inflation will become a permanent problem.

Marcel Fratschel, director of the German Institute of Economic Research, said that despite the efforts of the European Central Bank, the inflation rate could not decline rapidly. The Central Bank was making a difficult trade-off between maintaining stable inflation expectations and preventing the deepening of the euro zone recession. Huacheng Import and Export Data Observation reported.