ECB plays catch up, raises refinancing rate to 2 percent

ECB raises Main Refinancing Rate by 75bps to 2.00%

The ECB stated:

“The Governing Council today decided to raise the three key ECB interest rates by 75 basis points. With this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation.

The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.

Christine Lagarde: ECB President

The Governing Council will base the future policy rate path on the evolving outlook for inflation and the economy, following its meeting-by-meeting approach. Inflation remains far too high and will stay above the target for an extended period. In September, euro area inflation reached 9.9%.

In recent months, soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to a broadening of price pressures and an increase in inflation.

The Governing Council’s monetary policy is aimed at reducing support for demand and guarding against the risk of a persistent upward shift in inflation expectations. The Governing Council also decided to change the terms and conditions of the third series of targeted longer-term refinancing operations (TLTRO III).

During the acute phase of the pandemic, this instrument played a key role in countering downside risks to price stability.

Today, in view of the unexpected and extraordinary rise in inflation, it needs to be recalibrated to ensure that it is consistent with the broader monetary policy normalisation process and to reinforce the transmission of policy rate increases to bank lending conditions.

Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2.00%, 2.25% and 1.50% respectively, with effect from 2 November 2022.

Asset purchase programme (APP)

The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.

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Beige Book says housing is slowing amid high inflation

Fed’s Beige Book reiterated the economy expanded at a moderate pace

Fed’s Beige Book reiterated the economy expanded at a moderate pace.

But there was a big “however,” something the Fed typically does not express:

“several Districts reported grow signs of a slowdown in demand, and contacts in five Districts noted concerns over an increased risk of a recession.”

Most Districts reported moderation in consumer spending as higher food and gas prices diminished households’ discretionary income.

Federal Reserve Regions

Auto sales were sluggish with low inventories still impacting.

Leisure travel was “healthy.” Manufacturing was mixed. Non-financial services firms saw stable to slightly higher demand. Housing demand weakened.

As in the prior report, the outlook for future economic growth was mostly negative.

Employment generally continued to rise at a moderate pace and conditions were tight overall.

Jerome Powell, FOMC Chair

But there was some sign of modest improvement in labor availability.

Most Districts reported wage growth.

“Substantial” price increases were reported across all Districts, at all stages of consumption, with food, commodities, and energy (particularly fuel) cost remaining “significant.”

There was some moderation in construction materials.

Pricing power was steady, but firms in some sectors like travel and hospitality, were able to pass through sizeable increases to consumers. That is seen persisting through the year.

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Drill, Baby, Drill,

Baker Hughes reports U.S. rig count up 3 to 698 rigs

Baker Hughes (BKR) reports that the U.S. rig count is up 3 from last week to 698 with oil rigs up 3 to 552, gas rigs unchanged at 144 and miscellaneous rigs unchanged at 2.

The international offshore rig count for April 2018 was 194. Stockwinners

The U.S. Rig Count is up 258 rigs from last year’s count of 440 with oil rigs up 210, gas rigs up 48 and miscellaneous rigs unchanged at 2.

The U.S. Offshore Rig Count is up 1 to 14, up 1 year-over-year.

The Canada Rig Count is down 6 from last week to 95, with oil rigs down 3 to 45, gas rigs down 3 to 50.

The Canada Rig Count is up 44 rigs from last year’s count of 51, with oil rigs up 25, gas rigs up 19.

The Baker Hughes rig counts are counts of the number of drilling rigs actively exploring for or developing oil or natural gas in the U.S., Canada and international markets.

The Company has issued the rig counts as a service to the petroleum industry since 1944, when Hughes Tool Company began weekly counts of the U.S. and Canadian drilling activity. The monthly international rig count was initiated in 1975.

West Texas Intermediate (WTI) is up $1.10 to $106.39 per barrel. Brent crude is up $1.42 to $108.72 per barrel. Gasoline last traded at $3.474 per gallon flat on the day.

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ECB sets a two percent target for inflation

ECB keeps key interest rates unchanged, revises forward guidance on rates

The ECB said: “In its recent strategy review, the Governing Council agreed a symmetric inflation target of two per cent over the medium term.

The key ECB interest rates have been close to their lower bound for some time and the medium-term outlook for inflation is still well below the Governing Council’s target.

In these conditions, the Governing Council today revised its forward guidance on interest rates. It did so to underline its commitment to maintain a persistently accommodative monetary policy stance to meet its inflation target.

In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two per cent over the medium term.

This may also imply a transitory period in which inflation is moderately above target.

Having confirmed its June assessment of financing conditions and the inflation outlook, the Governing Council continues to expect purchases under the pandemic emergency purchase program – PEPP – over the current quarter to be conducted at a significantly higher pace than during the first months of the year…

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively.”

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