European Central Bank July meeting announced a interest rates raise of 50 basis points, beat market estimates of only 25 basis points.
After then, the three major interest rates are all positive officially, Europe said farewell to negative interest rates.
Compared with the obsequious US Fed, who follows market, ECB is much more independent. The top priority of the European Central Bank at present is to fight inflation.
There are two reasons,
First, we don't want to repeat the mistake of "misunderstand inflation" by the Federal Reserve.
Under the shadow of Russia-Ukraine war, the impact of the supply chain and trade environment in the euro zone is actually greater than that in the United States, and there is strong imported inflation from outside. The inflation rate in Europe rose to 8.6% in June, and the core reconciliation CPI was 3.7% year-on-year, both exceeding the monetary policy target. However, it did not exceed expectations as in the United States.
As in the United States, the biggest contribution of inflation in Europe comes from energy, but the impact of housing has not yet been reflected. The European Central Bank is worried that energy inflation will spread to other areas and bring about overall inflation. It also needs to pay attention to the impact of the pace of interest rate hikes on housing.
It should be noted that an important willingness for the US CPI to exceed expectations in June is rent. Because of the increase in housing loan interest rates, more people choose to rent houses, which also pushes up the rental holiday. However, unlike the United States, each country has an independent fiscal policy although it does not have an independent monetary policy. Every country has the ability to regulate the real estate market independently, which is not as passive as the United States.
Second, We don't want to repeat the mistakes of the European debt crisis ten years ago.
In addition to raising interest rates, the European Central Bank also announced the launch of a new monetary policy tool-Transmission Protection Instrument (TPI), in response to the market's concern about the risk of financial differentiation in the euro zone. According to the European Central Bank,TPI, as a new tool, aims to counter unreasonable and disorderly market adjustmentTo prevent these extreme market dynamics from posing a serious threat to monetary policy transmission throughout the euro zone.
Although TPI does not set a purchase ceiling in advance, it will focus on public sector securities with a remaining term of 1-10 years (securities issued by the central and regional governments of the euro zone and institutions defined by the European Central Bank), but it only aims at the unprovoked and disorderly market conditions, and does not aim at the deterioration of financial conditions caused by fundamental risks.
In other words,Will not provide unlimited funds to the government in financial deterioration.
To understand it as a whole,
On the one hand, the determination of the European Central Bank to fight inflation is very obvious. President Lagarde also said at the press conference that the decision to raise interest rates will be gradually revised on a monthly basis in the future, that is to say, the previous monetary policy outlook will be abandoned, and the rate increase communicated with the market will no longer prevail, but will be completely data dependent instead.
On the other hand, we don't want to accelerate the recession because of too fast tightening. Therefore, TPI is retained as a tool. In fact, the European Central Bank has a lot of adjustment tools. Before QE, it also withdrew many tools to increase money supply, and there was also a partial orientation trend. This is similar to the domestic directional regulation tools, and it is a good means of flexible regulation.
Europe's unexpected interest rate hike actually supports the euro to some extent. At present, the exchange rate of the euro is still above 1, but if the US dollar continues to flow back and the Federal Reserve raises interest rates more than expected, the strong trend of the US dollar cannot be changed.
$Invesco DB US Dollar Index Bullish Fund(UUP)$ $Euro FX - main 2209(EURmain)$ $Euro-Bund - main 2209(FGBLmain)$ $USD Index(USDindex.FOREX)$
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