BC falcon? Its rates are among the lowest in the world.

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An analysis of the ECB’s monetary policy makes it clear that, in reality, Eurozone rates are among the lowest in the world. Despite Frankfurt’s aggressive comeback, their moves look cautious.

AEC aggressive againstinflationbut its rates are among the lowest when compared to the policies of major central banks.

The study by the Public Accounts Observatory highlighted how in Frankfurt a decisive but, in short, cautious tone was chosen.

How much are the interest rate in AEC compared to other central banks? A comparison.

Prudent or hawkish ECB? A worldwide rate comparison

The interesting analysis is by Giampaolo Galli, Francesco Scinetti and Nicoletta Scutifero on the Public Accounts Observatory and reveals how, compared to the world’s central banks, the eurozone’s is not as aggressive. In short:

“Despite the increases in recent months (2.5 percent more since July 2022), the ECB remains one of the central banks with nominal and real interest rates lowest in the world. Almost all advanced countries (Norway, Australia, South Korea, United Kingdom, Israel, Canada and the United States) have similar or lower inflation than the eurozone and higher interest rates.

In numbers, considering the reference interest rate, if in the Euro Zone it is 2.50%, the others are much higher: Fed 4.50%, Bank of England 3.50%, Bank of Australia 3.10%, Bank of Canada 4.25%, Bank of New Zealand 4.25%, Central Bank of Russia 7.50%, Bank of India 6.25%, Bank of China 3.65%, Central Bank of Brazil 13.75% .

consider that only JapanSwitzerland and Denmark have lower rates, with the Asian country in negative territory, -0.10%, against an accommodative policy unchanged for years.

The study also compares the real interest rates, or obtained by subtracting the inflation rate of the last 2 months from the nominal rates. However, it turns out that the ECB has a rate of -6.70%, among the lowest.

The Observatory table is explicit in the comparison:


Comparison of real and nominal central bank rates

Comparison of real and nominal central bank rates

It is interesting to note that, faced with a global trend of rising prices, only two countries opted for countercurrent policy choices, that is, interest rate cuts. first the China, which however had its own economic developments with strict closures due to the pandemic and the need to stimulate demand. and then there Peru, which despite record inflation of almost 100%, opted to ease the cost of money to stimulate credit and consumption. And give in to Erdogan’s unorthodox theories on monetary policy. However, in the meantime, the lira has devalued considerably.

What signals from the ECB?

Although the path taken by AEC is quite aggressive in raising interest rates, so much so that countries like Italy have not hidden their criticism, even to the determined communication of caterpillarin comparison, the Eurotower is still comfortable.

The three analysts in the article spoke of some central bank prudence, with this caveat:

“However, the lesson of the 1970s tells us unequivocally that central banks cannot remain inactive in the face of an increase in inflation such as that which has been registered in recent months. The risk of inertia is that the inflationary expectations become ingrained in the behavior of economic agents and that, ultimately, more drastic anti-inflationary actions are needed that would cause a deeper recession than more timely policies would result”.

Is Europe’s rate hike just the beginning?

Source: Money It

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