The Day at a Glance | May 23 2022

The Top

*The ECB is getting ready to leave negative interest rates in Europe towards September: Christine Lagarde, President of the ECB.

*China prepares do reduce taxes and implement fiscal benefits worth 21 billion dollars to stimulate the economy.

*Biden assures that he will reconsider tariffs placed on imported Chinese products during the Trump administration.

*The EU plans to suspend fiscal rules in 2023 that will allow greater deficit and indebtedness among its member countries.

*Peking logged a new record number of COVID-19 cases, a sign that restrictions in China will remain in place

Economic environment

The end of negative interest rates in Europe. President of the European Central Bank Christine Lagarde assured that it`s likely that the ECB will start to increase interest rates in July and abandon negative interest rates by the end of September. With this, the asset purchasing program will come to an end in the 3Q22, according to the central bank`s blog. Comments made by Lagarde suggest that there will be two, 25bp increases in July and September, which would take the deposit rate to 0% (currently at -0.5%). Lagarde pointed out that monetary normalization will be gradual and she discarded any aggressive hikes – like the ones that are being carried out in the US – as she considers that moving step by step and observing the effect that increasing rates have on inflation and growth are very important.  With this, Lagarde practically announced interest rate increases in Europe with the intention of clarifying the European Central Bank`s monetary normalization process. In light of this news, the Euro appreciated 1% as markets expected the ECB to adopt a similar stance to the FED`s. Nevertheless, the ECB`s process will be more gradual and Lagarde considered it important to keep the central bank`s stance flexible; in order to be able to adjust to economic conditions with time and avoid a faster than necessary withdrawal of monetary stimulus. Lastly, Lagarde pointed out that they will make and apply new instruments to guarantee that the Eurozone`s monetary policy is transmitted effectively, although she didn`t share any details.

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