Lagarde will end an era at the ECB with the first rate hike since 2011

MADRID, 17 Jul. (EUROPA PRESS) -

The Governing Council of the European Central Bank (ECB) will undertake this Thursday the first rise in interest rates in the eurozone since July 2011, thus putting an end to an era in the monetary policy of the eurozone in the face of the harassment of inflation runaway and the relentless fall in the value of the euro against the dollar in recent months, while Italy is going through a new political crisis.

This first rise, which will affect the three rates managed by the central bank (deposit, refinancing and loan), was telegraphed by the ECB at its previous meeting in June, so except for an unexpected surprise, which would have a difficult explanation, it will be 25 basis points.

In addition to the confirmation of the announcement of the first rise in interest rates in the eurozone, Thursday's meeting of the Governing Council will also feature another point of great interest, since the details of the anti-fragmentation plan on which it is working could be announced the ECB.

From Bank of America they point out that a rate hike of more than 25 basis points this Thursday "is unlikely, but not unthinkable", something that they also relate to the presentation of the new ECB tool to combat fragmentation.

"Given the recent developments on inflation and in other central banks, a movement of 50 basis points cannot be ruled out", although the US bank preferentially considers that instead of a higher than expected rise, Lagarde at the press conference later "leave the door wide open to more than 50 basis points in September".

In this sense, Ulrike Kastens, economist for Europe at DWS, points out that the tightening that the ECB may announce of its monetary policy may be greater the more powerful the program to combat fragmentation in the eurozone turns out to be.

"It has fueled great expectations in the market, which must now be met," warns the economist, who does not expect said program to be limited in time and sees it likely that possible asset purchases will be sterilized to avoid a new expansion of the ECB's balance sheet , although he bets that the ECB will only be able to buy bonds from specific countries if they meet certain fiscal conditions.

"However, strict conditions and rules cannot be expected as in the case of the OMT, but the central bank could settle for declarations of intent," says Kastens, warning that this could make the new program legally challengeable in the medium term. term.

For their part, Bank of America analysts consider that it is likely that the ECB will make at least a partial announcement on the new tool, with the possibility that some details will be published at a later date, although they warn that the conditionality and the potential triggers of the new instrument, by leaving a lot of room for subjective interpretation, will make it less effective and likely "push the market to test the ECB".

"Unfortunately for the ECB, the market could try to test this new tool sooner than we thought a few days ago. The political events in Italy do not help in this regard," they point out, since, in the event of a full-fledged crisis, reinvestments can help for a while, but without the support of the new tool, they would ultimately not be enough.