— This is the script of CNBC's financial news report for China's CCTV on December 16, 2022.
The ECB's 50 basis point increase in its key interest rate was in line with market expectations. However, in view of the ECB President, Lagarde clearly refuted the view that interest rates will be cut soon, as well as the ECB released a more specific message than expected about quantitative tightening, which made many analysts interpret this ECB statement as hawkish.
The rate hike is also the fourth ECB rate hike since July this year, and if we look back in history and compare the ECB's previous rate hike cycles, we can see the steepest fold trend in the rate hike range in 2022. The Financial Times says this is the most aggressive rate hike cycle since the birth of the euro in 1999.
In addition to raising interest rates, the ECB also announced that it will reduce its balance sheet starting in March next year. Its portfolio of asset purchase programs will be reduced by an average of 15 billion euros per month until the end of the second quarter of next year. The ECB also said it will announce more details about the reduction of its asset purchase program in February next year and will periodically assess the pace of the reduction to ensure it is consistent with its monetary policy strategy.
The aggressive rate hike is an attempt to curb high inflation. Although recent data showed that the eurozone inflation rate rose in November has declined. However, the ECB still raised its inflation forecast for this year.
Christine Lagarde
President of the European Central Bank
"Amid exceptional uncertainty, Euro system staff have significantly revised up the inflation projections. They now see average inflation reaching 8.4% in 2022, before decreasing to 6.3 in 23."
"And based on the substantial upward revision to the inflation outlook, we expect to raise them further. In particular, we judge that interest rates will still have to rise significantly."
In addition, earlier in the day, the Bank of England also announced a 50 basis point rate hike, pushing its benchmark interest rate up to 3.5%. But unlike the ECB, the BoE is cautious about raising rates significantly.
Two of the Bank of England's nine rate-setters voted to leave rates unchanged, arguing that previous moves were enough to bring inflation back to the central bank's 2% target. And the BoE believes the U.K. economy is already in recession and will remain so for a long time.
Some analysts point out that the UK is facing similar inflation to Europe, but the UK is a homeownership economy and therefore very sensitive to interest rates in the mortgage market. In addition, about the source of pressure on the British economy, there are analysts believe that perhaps also with the "after-effects of Brexit" and the labor market related.
JACOB KIRKEGAARD
Peterson Institute For International Economics Senior Fellow
"Brexit has played a major role of this, is certainly if you include the labor markets as well, because it is one of the reasons why the UK labor markets and therefore wage price pressures are as high as they are."
We saw the major European stock indices close sharply lower after both the ECB and the BoE raised rates.