| Ramzi Chamat
Inflation is showing signs of slowing down; however, it remains concerning over an extended period. The Governing Council has set a priority to bring inflation back to its medium-term target of 2%. With this in mind, and to promote this momentum, it was decided today to increase the ECB's three key interest rates by 25 basis points.
Introduction
The recent evolution of inflation in the euro zone is drawing the attention of many observers and economic players. Its persistence above target levels raises questions and concerns, particularly regarding the strategy to adopt to address it. The European Central Bank (ECB), as the flagship institution of monetary policy, is at the heart of these discussions.
I. The persistence of inflation and the ECB's response
Inflation, despite slowing down, remains above forecasts, raising concerns both in the markets and among policymakers. Faced with this challenge, the Governing Council of the ECB has firmly positioned itself in favor of returning inflation to the 2% medium-term target. To materialize this determination, an increase in the three key interest rates was decided, reflecting the Council's perspective on the inflationary evolution.
II. In-depth analysis behind the rate decision
The recent rate change by an addition of 25 basis points is not insignificant. This decision stems from a detailed analysis of inflationary trends, taking into account several key factors such as the dynamics of core inflation, the impact of monetary policy, and up-to-date economic and financial statistics. According to the ECB's forecasts for the euro zone, inflation of 5.6% is anticipated for 2023, followed by 3.2% in 2024 and 2.1% in 2025.
III. The energy issue and its implications
Energy, and more specifically its cost, remains at the heart of inflationary revisions, reflecting its crucial importance in the economy. Despite an apparent stabilization of some indicators, inflationary tensions persist.
IV. The ECB's complementary instruments
The ECB's strategy does not stop at interest rates. It also includes dedicated programs, such as the asset purchase program and the PEPP. While the portfolio of the former is gradually shrinking, the PEPP, on the other hand, will continue to reinvest the repayments of maturing securities until the end of 2024.
Conclusion
The ECB, aware of the challenges surrounding it, demonstrates its adaptability by adopting a multidimensional approach to ensure monetary stability. Its firm commitment and targeted actions testify to its desire to ensure lasting economic stability for the euro zone. The upcoming conference will undoubtedly be a pivotal moment to further clarify this strategy.
Keywords: Inflation / ECB / Key interest rates / Monetary policy / Energy / PEPP / Euro zone / Monetary stability / Conference / Strategy.
