The Cambridge Weekly – 18th September 2023

The Cambridge Weekly – 18th September 2023

Central bank hawks determined to defang inflation

The European Central Bank (ECB) raised rates last Thursday, with the majority of its Governing Council members concerned that the inflation parasite may be alive for a while longer. Of course, parasites can continue to be robust while their host deteriorates.

Interest rates in Europe: is the peak actually in sight?

Only recently, it seemed as if ECB policymakers would hold off on another hike, following some dire economic data. Bank governors were reportedly split on how the continent’s undeniable slowdown might feed through into wage and inflation pressures, as well as the lagged effects of previous hikes. But news of a stickier inflation outlook rightly swung the market pendulum back to tightening expectations. In the end, the ECB raised its deposit rate once again by 0.25% to 4%. Given the frail economic outlook, and indications that rates may have reached a plateau, bond markets rallied and the euro sold off.