Market Updates
ECB Plans to Go Beyond Rate Hikes and Bond Sale to Combat High Inflation
Brian Turner
18 Nov, 2022
New York City
The European Central is likely to continue its campaign of rapid rate hikes in future and plans to begin withdrawing bank stimulus provided during the pandemic era.
With inflation at 4-decade high driven by high energy prices and supply chain issues, the central bank is struggling to tame inflation using the blunt tool of interest rate control.
The European Central Bank may have to lift rates high enough to be restrictive for the economy in order to bring down inflation to its target rate, said president Christine Lagarde at a speech.
The ECB lifted interest rates by 200 basis points since July, including back-to-back 75 basis point increases, but the current rates are not restrictive enough to have an impact on inflation.
More rate hikes and the reduction of its 5 trillion euro debt holdings are on the way, said Lagarde.
The central bank is largely reliant on interest rates as its main tool in bringing down 4-decade high inflation but the bank is also struggling with a pile of government holdings that are losing value with the rapid hikes in rates.
Moreover, the European Central Bank is asking banks to return
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