Central Banks Summary – 17 June 2022

Bank of England

Last Thursday the Bank of England announced, for the fifth time, a 0.25% hike in its key interest rate. Currently, it is at 1.25%, which makes the Bank of England one of the Central Banks with the most aggressive stance in Europe.

This increase was, as in the rest of the world, to combat inflation, which is also quite high. The problem is the possible consequences of this monetary policy. It is expected that the UK GDP will contract this quarter, which could be exacerbated by this hike in the key interest rate.

Another hike is expected at the next meeting, possibly 0.25%. But there is the possibility of the 0.50% depending on the next UK inflation data.

ECB

After the rise in interest rates on the debt of some countries like Italy, Greece, and Portugal, this week the President of the ECB called an emergency meeting. She decided to convene the Eurozone Finance Ministers to try to bring some confidence back to the markets.

She announced a mechanism to prevent sharp rises in interest rates on these debts. The mechanism was not specified, nor what the criteria would be, but she assured that they would be with the aim of ensuring price stability.

It seems to have worked, at least in the short term, with the debt of these countries falling slightly. It remains to be waited and seen what the development of these new measures will be.

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