The Day at a Glance | April 21 2022

The Top

*Vice-President of the ECB, Luis de Guindos, expects the purchasing program to end in July and prepare interest rate increases in the same month.

*Putin declares victory in Mariupol; the territory is essential for establishing a land corridor between Crimea and Donbas.

*Xi defends quarantine measures in China despite their economic impact.

*A 7.4% annual rate of inflation was confirmed in Europe during March.

*Jerome Powell and Christine Lagarde will attend the IMF`s spring meeting today.

Economic environment

Shift in the ECB. Recent statements made by members of the European Central Bank suggest that the ECB is ready to start carrying out interest rate increases in the second half of the year. The strongest statement was made by the ECB`s Vice-President, Luis de Guindos, as he assured that he sees no reason for the purchasing program to extend beyond July. Additionally, he said that interest rate increases will depend on macroeconomic forecasts that the central bank will make known in its meeting in June; although he said that, given current circumstances, interest rate increases could be carried out in July or September. These comments are in line with market expectations as they expect the deposit rate to increase in 25bp in July with a 75% degree of probability (its currently set at -0.5%) – and set at 0% in October. Guindos considers that some of the key elements to keep an eye on before the central bank shifts its monetary policy include medium and long-term inflationary expectations and wage increases. He believes there is evidence that expectations or second order price effects will become unanchored (overall increases after the shock in energy and food prices), which is why it would be wise to normalize Europe`s monetary policy at a firm pace. Other members like Pierra Wunsch, Joachim Nagel and Martins Kazaks agree that interest rate increases could start as soon as July. Wunsch even suggested that monetary normalization could be carried out faster than what markets expect. The members` comments confirm that there is concern within the ECB regarding high inflation and risks of losing control over the stability of prices despite slow growth.

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