Translated material
The euro will become heavier
The European Central Bank raised rates
The European Central Bank yesterday raised the interest rate by 0.25 percentage points, from 3.25% to 3.5% per annum. This decision of the regulator did not come as a surprise to market participants - the ECB had long been expected to tighten monetary policy. In addition, a higher rate was already included in the value of the euro on world markets - the forecast of its increase was one of the reasons for the increase in quotations of the European currency against the dollar over the past two weeks. Observers expect the ECB to continue its policy of increasing interest rates next year, which will result in a further strengthening of the euro against the dollar.The ECB's policy is linked to its desire to curb inflation in the eurozone countries. This is the sixth increase in the discount rate since the beginning of the year, as a result of which the euro has risen in price by 11% against the dollar since January. Yesterday, after the announcement of the ECB's decision, euro currency quotes rose by 0.1% to $1.3305, reaching the highest level in the last 20 months. As ECB President Jean-Claude Trichet said at a press conference yesterday, “The European Central Bank continues to pursue a flexible monetary policy, acting firmly and in a timely manner to ensure guarantees of price stability. The Board of Governors will closely monitor the situation as it develops.”
Market participants believe that if at the first meeting of the regulator in the new year on January 11 it will most likely be decided to leave the rate unchanged, then in March it will be raised by another 0.25 percentage points. In this case, the dollar exchange rate against the euro may fall below 1.35. “We expect the ECB to continue raising rates,” UBS currency analyst Benedict Germanier said in an interview with Bloomberg. “The ECB wants to raise rates,” said an economist at JP Morgan Chase & Co. Silvia Pepino. - The problem is that there are doubts about economic growth. The bank needs to take careful steps.” The rise in price of the euro leads to a slowdown in economic growth in the eurozone countries. It is expected that next year GDP growth will be only 2.1%; based on the results of three quarters of this year, it is 2.7%.
At the same time, the most important task for the European Central Bank is the fight against inflation, the level of which should be below 2%. So far, inflation in the eurozone is 2.2-2.3%. The forecast for next year is 2.1%.
As the Financial Times Deutschland newspaper notes, European analysts believe that the ECB rate increase will last until 2008, by which time it will be 4%.
This policy of the European Central Bank, especially against the backdrop of the US Federal Reserve's reluctance to raise its interest rates, will lead to an even greater strengthening of the nominal exchange rate of the ruble. As you know, the Bank of Russia now sets the exchange rate of the national currency based on quotations of the euro and dollar. Managing the nominal exchange rate is so far the Central Bank's main tool for containing inflation. However, the Russian regulator expects to regulate the cost of money using interest rates by 2009. As the first deputy chairman of the Central Bank, Alexey Ulyukaev, believes, this will happen when world prices for energy resources decrease and there is no excess liquidity in the market, and the main source of money supply will be loans provided by the Central Bank.