ECB lifts rates by unprecedented 75 bps

[P2PECS]

https://www.reuters.com/markets/europe/ecb-poised-another-big-rate-hike-inflation-soars-2022-09-07/

The European Central Bank raised its key interest rates by an unprecedented 75 basis points on Thursday and signalled further hikes, prioritising the fight against inflation even as the bloc's economy is heading for a likely winter recession.

The ECB has ended up doing what it did not want to do for a long time but I do not think that this hike, as much as it is the highest in historical terms, is going to solve the situation. More increases are going to be needed for the EU to begin to see the light at the end of the tunnel.

This negatively affects economic growth, which is why central banks have so far been reluctant to implement rate hikes, in economies that have become largely dependent on liquidity injections.

https://breakingthenews.net/Article/Lagarde:-Economy-to-slow-down-substantially-over-rest-of-2022/58570674

European Central Bank President Christine Lagarde said on Thursday that euro area economy is expected to "slow down substantially" over the remainder of this year. She explained this is due to inflation, weakening in global demand due to tighter monetary policy, worsening terms of trade, as well as an expected slowdown in demand for services following the end of lockdowns.

We will have to see how this affects BTC, as many of us thought that it would become strong in crises, but with less money available and circulating, people tend to prioritize using money for basic needs, especially if we take into account that the vast majority have lost purchasing power and there will probably be layoffs. So it does not seem that large amounts of money are going to go into BTC soon.

[jackg]

I think btc would probably slump a bit based on the news of this and how it plays out but it'll probably respond similar to some stocks and rally after it (interest rates are normally only high when they need to be afaik so they'll probably be lowered within a year or two and most markets can continue in their current direction).

Is this the first rate hike from the ecb though? I don't think I've heard of one before this over the past 6 months and it looks quite a dramatic start (although maybe I've missed some news before).

[be.open]

Is this the first rate hike from the ecb though? I don't think I've heard of one before this over the past 6 months and it looks quite a dramatic start (although maybe I've missed some news before).

Second, the ECB recently raised the rate by 0.5%.

[lumbanrang]

We will have to see how this affects BTC, as many of us thought that it would become strong in crises, but with less money available and circulating, people tend to prioritize using money for basic needs, especially if we take into account that the vast majority have lost purchasing power and there will probably be layoffs. So it does not seem that large amounts of money are going to go into BTC soon.

I don't think this will have a significant or no impact on the crypto market, because it has nothing to do with the crypto market, especially in bear market conditions like today, of course, the circulation of money to the crypto market has decreased and without any regulation by the central bank, I think people nowadays are quite careful in investing their money into the crypto market. So it's only natural that the circulation of money into the crypto market now and in the next few months will decrease (or not at all)

[P2PECS]

Regarding this there is a related fact. The reference index against which the variable interest payment on mortgages is usually applied in EU countries, Euribor, has exceeded 2% today.

As has been the case throughout the year, it has been on an upward trend, so new mortgages will be more expensive and people who already have a mortgage, if they have it at variable interest, they will pay more when it is reviewed (usually every 6 or 12 months).

This is another reason to think that there will be less money circulating and less money in people's pockets.

[paxmao]

I think btc would probably slump a bit based on the news of this and how it plays out but it'll probably respond similar to some stocks and rally after it (interest rates are normally only high when they need to be afaik so they'll probably be lowered within a year or two and most markets can continue in their current direction).

Is this the first rate hike from the ecb though? I don't think I've heard of one before this over the past 6 months and it looks quite a dramatic start (although maybe I've missed some news before).

Yep you have missed the news, there was a previous rate hike of half a point. The bank is taking very seriously not just the inflation but what the FED is doing and what the US is doing in respect to the Euro (basically eating it alive). The commitment as you say seems strong, like a signal to the market that they care more about macroeconomics than about the situation of people in Europe.

[avikz]

It's happening everywhere! Inflation is a real problem and increase interest rate is one of the most effective ways to fight inflation. So ECB is heading towards the right direction. It happened in my country as well. I was paying an interest rate of 7.5% on my mortgage and last week it has been increased to 8.3%. Both my EMI and loan tenure got increased. I will now have to look into my finances more closely to reduce the extra expenditure.

I doubt at this scenario, investment will flow into bitcoin. Rather people can take out their money from bitcoin and invest in banking assets as the interest rate has been increased. That's usually what happens!

[Mauser]

This negatively affects economic growth, which is why central banks have so far been reluctant to implement rate hikes, in economies that have become largely dependent on liquidity injections.

I think it's not only the economic impact it has the ECB fears but also the impact on financing cost of the southern European countries. Many of these countries are heavily in debt and rely on refinancing their loans each year. With higher interest rates the monthly interest payment is going to increase and will leave less money for other things in the budget. Nonetheless reacted the ECB way too slow, we have been dealing with high inflation rates for the whole year almost. During winter economicst predict a double digit inflation rate and for next year they forecast 6%. The interest rate increase by the ECB will have no big impact to reduce inflation. The ECB is clearly more concerned about countries as a whole and not about the average person who is trying to save some money each month. The problem remains that we don't get any interest on our cash compared to the high inflation rate, the only solution is to invest.

[Hydrogen]

They have to hike rates to retain margins in loan markets.

Issuing loans with 6% interest, in an economic market where inflation is greater than 8% is a losing proposition.

Rates must hike to trail inflation for them to maintain profit and safety margins. Even then there is a danger that they will fall behind.

It is also possible that the cost of inflation on banks, will eventually be passed on to consumers in the form of rate and fee hikes.

Which could bode well for crypto alts and tokens which are better positioned to cope with inflation.

I think the general rule of thumb says as long as inflation continues to rise at a high pace, banks will be forced to follow.

[Fortify]

https://www.reuters.com/markets/europe/ecb-poised-another-big-rate-hike-inflation-soars-2022-09-07/

The European Central Bank raised its key interest rates by an unprecedented 75 basis points on Thursday and signalled further hikes, prioritising the fight against inflation even as the bloc's economy is heading for a likely winter recession.

The ECB has ended up doing what it did not want to do for a long time but I do not think that this hike, as much as it is the highest in historical terms, is going to solve the situation. More increases are going to be needed for the EU to begin to see the light at the end of the tunnel.

This negatively affects economic growth, which is why central banks have so far been reluctant to implement rate hikes, in economies that have become largely dependent on liquidity injections.

https://breakingthenews.net/Article/Lagarde:-Economy-to-slow-down-substantially-over-rest-of-2022/58570674

European Central Bank President Christine Lagarde said on Thursday that euro area economy is expected to "slow down substantially" over the remainder of this year. She explained this is due to inflation, weakening in global demand due to tighter monetary policy, worsening terms of trade, as well as an expected slowdown in demand for services following the end of lockdowns.

We will have to see how this affects BTC, as many of us thought that it would become strong in crises, but with less money available and circulating, people tend to prioritize using money for basic needs, especially if we take into account that the vast majority have lost purchasing power and there will probably be layoffs. So it does not seem that large amounts of money are going to go into BTC soon.

Unfortunately cheap and easy money is the easiest way for all of these central bankers to stay popular, so they're happy to ignore any potential problems for as long as possible - even when they could have been more proactive about handling it years ago. Now we're seeing this kneejerk, but frankly necessary, reaction to increase rates at unprecedented levels because inflation has gotten so carried away. If they had slowly and incrementally increased it as the world came out of recession, or even 5 years ago after the last financial crisis was a distant memory, then it would be possible to take a much more balanced approach. Hard to call these bankers responsible, but they're also under a lot of pressure all the time from short term politicians.

[P2PECS]

They have to hike rates to retain margins in loan markets.

Issuing loans with 6% interest, in an economic market where inflation is greater than 8% is a losing proposition.

I think this sums it all up.

I think the general rule of thumb says as long as inflation continues to rise at a high pace, banks will be forced to follow.

Until now, Central Banks did not want to raise rates because their economies are very addicted to liquidity. Withdrawing liquidity we know that it leads to crises. I helps to fight inflation because less money available means less demand, but less demand also leads to job losses, etc.

One problem I see is that this inflation is not so much about high demand as it is about rising energy prices, so attacking demand without attacking energy prices cannot give a good result, only partially good if that's the case.

I think they are going to raise rates but when they start to see serious problems on the demand side and inflation has calmed down a little, they will stop raising them immediately, otherwise they will take the opportunity to lower them again, albeit timidly.

[mindrust]

Too late and still way behind the mega inflation which Europe is facing. They should probably have to raise the interest rates to 5-6% or even more to have a meaningful effect against the ongoing inflation. USA is fighting the inflation battle better than the EU but they are also late. Inflation is winning this fight very easily. When you think about it the western nations (except for a few) are full of debt in the last years. Maybe that's the reason they are not fully fighting the inflation. If they raise the rates "too much", some of those countries will go bankrupt.

[P2PECS]

Too late and still way behind the mega inflation which Europe is facing. They should probably have to raise the interest rates to 5-6% or even more to have a meaningful effect against the ongoing inflation. USA is fighting the inflation battle better than the EU but they are also late. Inflation is winning this fight very easily. When you think about it the western nations (except for a few) are full of debt in the last years. Maybe that's the reason they are not fully fighting the inflation. If they raise the rates "too much", some of those countries will go bankrupt.

I buy part of your argument, but as I said in my previous comment, attacking inflation on the demand side without attacking the biggest cause which is energy prices is never going to solve the problem completely.

[mindrust]

Too late and still way behind the mega inflation which Europe is facing. They should probably have to raise the interest rates to 5-6% or even more to have a meaningful effect against the ongoing inflation. USA is fighting the inflation battle better than the EU but they are also late. Inflation is winning this fight very easily. When you think about it the western nations (except for a few) are full of debt in the last years. Maybe that's the reason they are not fully fighting the inflation. If they raise the rates "too much", some of those countries will go bankrupt.

I buy part of your argument, but as I said in my previous comment, attacking inflation on the demand side without attacking the biggest cause which is energy prices is never going to solve the problem completely.

Rising energy prices is the result of the rising monetary base which causes the inflation in the first place. If you think the energy prices are expensive, that only means you are poor and can't afford to pay the price. There are infinite amount of energy in the world. You just have to collect it either via digging or installing solar panels... whichever is cheap.

Sure, the ongoing Russia/Ukraine war also affects the prices but Russia is not the only seller in the market. You can always buy energy from somewhere else. I don't think that war affects the prices that much. It is the hugely expanded monetary supply which caused the price rises.

[P2PECS]

Rising energy prices is the result of the rising monetary base which causes the inflation in the first place.

You are wrong.

If you think the energy prices are expensive, that only means you are poor and can't afford to pay the price.

What? Lol. That's a great strawman argument right there.

Sure, the ongoing Russia/Ukraine war also affects the prices but Russia is not the only seller in the market. You can always buy energy from somewhere else. I don't think that war affects the prices that much.

You have no idea how the market works.

[el kaka22]

I mean this was expected to begin with, we couldn't just have this kind of low rate when the inflation is going this high, they needed to do a tight budget thing and retract money from the markets so that the inflation would drop.

This would of course result with recession but that usually means a potential to get better, sometimes when you get sick you need to take the bad taste pill to get better and you need to fix that as much as you can, and then you can start to get better. I believe this was a great decision and I believe it will 100% help Europe in the long run, in fact UK needs to increase theirs as well as soon as this whole Queen stuff is over.