Latest news with #ChristineLagarde
Kuwait Times
3 days ago
- Business
- Kuwait Times
ECB keeps interest rates steady
Bank awaits clarity over trade • Rumored 15% tariff worse than ECB's baseline FRANKFURT: The European Central Bank left interest rates unchanged on Thursday after cutting eight times in a year, biding its time while Brussels and Washington negotiate over trade. The ECB cut its policy rate to 2 percent last month, halving it from 4 percent a year earlier, after taming a surge in prices that followed the end of the COVID-19 pandemic and Russia's full-scale invasion of Ukraine in 2022. With inflation now back at the ECB's 2 percent goal and expected to stay there, policymakers chose to stay put on Thursday, just as trade talks between the European Union and Donald Trump's US administration appeared to be in their final stretch. The ECB's policy-making Governing Council painted a balanced picture of the economy, with near-term uncertainty over trade offset by public investment further down the road. 'Partly reflecting the Governing Council's past interest rate cuts, the economy has so far proven resilient overall in a challenging global environment,' the ECB said. 'At the same time, the environment remains exceptionally uncertain, especially because of trade disputes.' As ECB President Christine Lagarde and her colleagues were in the middle of their meeting late on Wednesday, EU diplomats said the two sides were heading towards a deal that would result in a broad tariff of 15 percent on US imports of European Union goods. This would be roughly halfway between the ECB's baseline and severe scenarios for the eurozone economy presented last month, but milder than Trump's threatened 30 percent. The ECB's estimate showed that higher US tariffs would result in lower growth and, depending on the extent of EU retaliation, inflation in the euro zone over the medium term. 'If the two sides indeed conclude such a deal, it would support our call that the eurozone economy can regain momentum from the fourth quarter onwards and that the ECB will not need to cut rates further,' Berenberg economist Holger Schmieding said. In its statement the ECB said it would decide 'meeting by meeting ... based on its assessment of the inflation outlook and the risks surrounding it'. Money markets were still pricing in a further interest rate reduction, probably by March, as inflation was seen at risk of going too low. Even the ECB's baseline projection from June, which incorporates 10 percent tariffs from the United States, saw price growth below 2 percent over the next 18 months. 'Even in the case of a benign outcome (ie US tariffs around 10 percent) we still see scope for further easing as the disinflation process broadens,' MUFG's Europe economist Henry Cook said. The euro zone economy is showing some tentative sign of acceleration but growth remains modest. Companies, while still optimistic about an upturn ahead, report starting to feel the pinch from tariffs on their profits. On the bright side, euro zone banks have seen rising loan demand and policy uncertainty has not yet translated into an economic or market downturn. After a short-lived selloff in April investors have taken the trade turmoil in their stride, with European equity indices close to new highs also thanks to Germany's newly found appetite for spending. In fact, erratic policy-making in the United States, including Trump's relentless criticism of the Federal Reserve, has lured foreign investors to eurozone assets. That briefly pushed the euro to its highest level against the dollar since September 2021 at $1.1829 earlier this month. ECB board member and outspoken hawk Isabel Schnabel even said the central bank should watch out for price hikes caused by tariffs and that the bar for further cuts was 'very high'. But the euro's appreciation has unnerved other policymakers, who fear a stronger currency would make European exports less competitive and contribute to pushing down inflation. 'On that front, we would expect Christine Lagarde to strike a reassuring tone, reminding people that the ECB does not target exchange rates but that any resulting downward pressure on inflation will be addressed, if necessary,' Julien Lafargue, chief market strategist at Barclays Private Bank, said. – Reuters
Business Times
4 days ago
- Business
- Business Times
Euro zone economy holds up even as ECB speakers look to temper market view of no more cuts
[FRANKFURT] The euro zone economy has remained resilient to the pervasive uncertainty caused by a global trade war, a slew of data showed on Friday (Jul 25), even as European Central Bank (ECB) policymakers appeared to temper market bets on no more rate cuts. The ECB kept interest rates unchanged on Thursday and its modestly upbeat assessment of the euro zone economy raised investors' expectations that a year-long easing cycle, which halved the bank's key rate to 2 per cent from 4 per cent, may be coming to a close. Supporting some of this optimism, lending data showed the fastest pace of expansion in two years, while a key ECB survey predicted quicker economic growth along with inflation right on target. A separate Ifo survey on Germany meanwhile showed the seventh consecutive rise, indicating that the bloc's biggest economy is still motoring along despite trade tensions holding back exports and corporate investment. The figures also back comments from ECB President Christine Lagarde that the bloc may have performed a 'little better' than expected last quarter. The fresh data, combined with Lagarde's comments, led investors to keep reducing their bets on further rate cuts. Markets now see just a 50 per cent chance of another move this year, a major retreat from earlier this week when another cut was fully priced in. Still, policymakers appeared to take a more cautious view than financial investors. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up 'Risks to growth were still tilted to the downside, with uncertainty remaining very high,' French central bank chief François Villeroy de Galhau said. 'More than ever, in a volatile environment, agile pragmatism in light of data and forecasts is of the essence.' One key worry is that tepid growth, a strong euro and the hit from tariffs will all curb price pressures, raising the risk that inflation, now at the ECB's 2 per cent target, will fall too low, requiring stimulus from the central bank. 'US tariffs, the extent of which is still uncertain, are not expected to cause inflation to rise, while the appreciation of the euro is having a significant disinflationary effect,' Villeroy said. Finnish central bank chief Olli Rehn also appeared to caution against staying on the sidelines for too long. 'Taking more time for decision-making is now particularly useful - the option value of waiting is exceptionally high,' Rehn said in a blog post. 'However, we should not wait in vain for general uncertainty to diminish much, at least not under the current US administration.' Nevertheless, several major banks revised their ECB forecasts. Goldman Sachs, BNP Paribas, Nomura and Commerzbank have all scrapped their predictions for more policy easing, expecting no more rate cuts this year, while JPMorgan pushed back its call for one final rate cut to October from September. However, several others, including Bank of America, Barclays and UniCredit, continued to predict a move in September, even if some of them acknowledged that the chances of a move have diminished somewhat. REUTERS
Bloomberg
4 days ago
- Business
- Bloomberg
Lagarde's ECB Diary Shows She Did Meet WEF Chief Schwab in April
European Central Bank President Christine Lagarde's official diary confirms that she did meet Klaus Schwab in April, in an encounter that he claims was focused on her early resignation. She spoke to the then-chairman of the World Economic Forum on April 14, according to a list of her engagements published by the ECB on its website on Friday, in line with its customary three-month delay for revealing such information.
Reuters
4 days ago
- Business
- Reuters
Euro zone economy holds up even as ECB speakers look to temper market view of no more cuts
FRANKFURT, July 25 (Reuters) - The euro zone economy has remained resilient to the pervasive uncertainty caused by a global trade war, a slew of data showed on Friday, even as European Central Bank policymakers appeared to temper market bets on no more rate cuts. The ECB kept interest rates unchanged on Thursday and its modestly upbeat assessment of the euro zone economy raised expectations investors that a year-long easing cycle, which halved the bank's key rate to 2% from 4%, may be coming to a close. Supporting some of this optimism, lending data showed the fastest pace of expansion in two years, while a key ECB survey predicted quicker economic growth along with inflation right on target. A separate Ifo survey on Germany meanwhile showed the seventh consecutive rise, indicating that the bloc's biggest economy is still motoring along despite trade tensions holding back exports and corporate investment. The figures also back comments from ECB President Christine Lagarde that the bloc may have performed a "little better" than expected last quarter. The fresh data, combined with Lagarde's comments, led investors to keep reducing their bets on further rate hikes. Markets now see just a 50% chance of another move this year, a major retreat from earlier this week when another cut was fully priced in. Still, policymakers appeared to take a more cautious view than financial investors. "Risks to growth were still tilted to the downside, with uncertainty remaining very high," French central bank chief François Villeroy de Galhau said. "More than ever, in a volatile environment, agile pragmatism in light of data and forecasts is of the essence." One key worry is that tepid growth, a strong euro and the hit from tariffs will all curb price pressures, raising the risk that inflation, now at the ECB's 2% target, will fall too low, requiring stimulus from the central bank. "U.S. tariffs, the extent of which is still uncertain, are not expected to cause inflation to rise, while the appreciation of the euro is having a significant disinflationary effect," Villeroy said. Finnish central bank chief Olli Rehn also appeared to caution against staying on the sidelines for too long. "Taking more time for decision-making is now particularly useful – the option value of waiting is exceptionally high," Rehn said in a blog post. "However, we should not wait in vain for general uncertainty to diminish much, at least not under the current U.S. administration." Nevertheless, several major banks revised their ECB forecasts. Goldman Sachs, BNP Paribas, Nomura and Commerzbank have all scrapped their predictions for more policy easing, expecting no more rate cuts this year, while JPMorgan pushed back its call for one final rate cut to October from September. However, several others, including Bank of America, Barclays and UniCredit, continued to predict a move in September, even if some of them acknowledged that the chances of a move have diminished somewhat.
Economic Times
4 days ago
- Business
- Economic Times
German bond yields hit four-month highs, bets wane on ECB cuts
German 10-year government bond yields hit their highest in four months on Friday, as fading conviction among investors for steeper rate cuts from the European Central Bank compounded a push out of safe havens on optimism over U.S.-EU trade talks. ADVERTISEMENT The ECB left interest rates at 2% on Thursday, as expected, and President Christine Lagarde suggested policymakers were less concerned than before about an abrupt slowdown in growth and inflation over the coming year. Bond yields rose sharply in response. Meanwhile, optimism is growing that the European Union will be able to secure an agreement with the United States on trade at a lower tariff than the 30% threatened by President Donald Trump if there is no deal by his August 1 deadline. Government bonds came under pressure, as did gold and safe-haven currencies like the Japanese yen and Swiss franc. Two-year German Schatz yields, which rose by nearly 12 basis points on Thursday in their biggest one-day increase since mid-May, were up 3.6 bps at 1.947%, their highest since April 3, the day after Trump's "Liberation Day" announcement on tariffs. Benchmark 10-year German yields were up 6 bps to 2.75%, their highest since the end of March, while Italian yields rose 7 bps to 3.636%, leaving the gap between the two at 88.2 bps, its widest in a week. ADVERTISEMENT Two sources told Reuters on Thursday that ECB policymakers were setting the bar high for a September rate cut and would need to see a significant deterioration in growth and inflation before backing further easing. BRIGHTER OUTLOOK ADVERTISEMENT Recent economic data suggests the euro zone is weathering uncertainty over U.S. tariffs reasonably well. Euro zone business activity hit an 11-month high in early July, based on HCOB's preliminary composite euro zone Purchasing Managers' Index, compiled by S&P Global on Thursday. ADVERTISEMENT "After good PMI numbers and a positive tone from the ECB, the path towards higher rates is becoming even clearer. If a trade deal gets signed, we should see rates move up further, with the 10-year swap rate hitting at least 2.8%," ING rates strategist Michiel Tukker said. The 10-year swap rate, an indicator of long-term borrowing costs, is hovering around 2.7%, its highest since March, having risen by nearly 20 bps in the last month. ADVERTISEMENT Tukker said a move towards 3% would likely be slower and would depend on growth remaining resilient. Money markets show traders are undecided about another ECB rate cut this year, attaching about a 30% chance of a drop below 2% by the end of December. Reflecting some of that greater confidence in the outlook was a modest improvement in German business morale in July. A survey on Friday from the Ifo institute showed its business climate index rose to 88.6 this month - the highest in 13 months - from 88.4 in June, slightly below a Reuters forecast for 89.0. A separate report from the ECB showed bank lending in the euro zone grew at the fastest pace in two years last month, extending a gradual recovery fuelled by lower borrowing costs and a stabilisation in the economy.
