Reactions to ECB decision: “Nothing less than regime change”

But the ECB is eyeing the heavily indebted countries like Italy, which are likely to continue to push for low key interest rates, even though the ECB today decided on an aid program for these countries. Inflation is likely to remain well above the promised two percent for many years to come.”

Iris Bethge-Krauß, Head of the Federal Association of Public Banks in Germany (VÖB):

“The ECB made the right decision today. The big hike in interest rates over the last eleven years signals that the monetary watchdogs want to get the record high inflation under control in the medium term. At the same time, it is a first step on a long monetary policy path.

The ECB continues to face a major challenge in containing corporate and consumer inflation expectations. We will support the ECB on its course.”

Ulrich Kater, chief economist at Dekabank:

“Interest rates must now be raised quickly towards 1.5 percent. A good chunk of this should happen while economic data is still reasonably good through the summer and fall. When the economy stagnates in the winter half-year due to energy problems, it is difficult to raise interest rates.

“The monetary land of plenty has closed.” Ulrich Kater, chief economist at Dekabank

Although the ECB has made further rate hikes dependent on future economic data, another large rate hike of 0.5 percentage points is likely in September.

With this entry into a tighter monetary policy, the age of zero and negative interest rates is over. The monetary land of milk and honey has closed. The financial markets have already adjusted to this over the past few months, which is why there was no major reaction on the stock and bond markets to today’s decisions by the ECB.”

Martin Wansleben, General Manager of the Association of German Chambers of Industry and Commerce (DIHK):

“Too high inflation rates and too high interest rates are both poison for the economy. They fuel uncertainty and increase companies’ financing costs. In the current situation, a clear positioning by the ECB is important in order to dampen inflation expectations.

Therefore, there is currently no better option than raising interest rates, even if that in itself weighs on the economy. Further well-measured interest rate hikes must follow.”

Michael Heise, Chief Economist HQ Trust:

Further rate hikes will follow, bringing the key interest rate of the ECB to 1.0 percent by the end of the year and the deposit rate to 0.5 percent. However, a reasonably neutral monetary policy should only be achieved at an interest rate level of around two percent. The model calculations that have been popular in recent years, which have placed the inflation-stable interest rate level in the negative range, have proven to be the wisps of the central banks.

The fact that the ECB’s announcements on the anti-fragmentation instrument have remained somewhat vague is appropriate to the situation. Bond purchases to control risk premiums for highly indebted countries would very quickly come into conflict with the ban on state financing and with compliance with country-specific quotas for bond holdings. Economically, bond purchases mean an expansion of the money supply, which could further fuel inflation.”

Christian Ossig, General Manager of the Association of German Banks (BDB):

“By raising key interest rates by 50 basis points, the ECB is taking a determined stance against inflation. The European currency watchdogs are finally ending the negative interest rate policy after eight years. In doing so, they are showing that they do not want to accept high inflation in the long term. This is also an important signal to the collective bargaining parties.”

Jens-Oliver Niklasch, Senior Economist, Landesbank Baden-Württemberg

“This is nothing short of regime change. Depending on your position, one could say that the ECB has pressed the panic button or is doing justice to its mandate.

At the same time, the ECB says goodbye to the forward guidance, which disappears into the junk room as unsuitable. The ECB now decides on the interest rate from meeting to meeting.

The TPI is new. We’ll have to wait for the details, but as things stand, these can only be large-scale government bond purchases. The courts will probably have to clarify whether this instrument conforms with the European treaties.

From a market perspective, it is positive that the ECB does not specify a limit ex ante. This is intended to discourage speculation against the euro. Ideally, the TPI remains a credible deterrent, similar to the OMT, and does not need to be activated at all.

The policy of the ECB is becoming more difficult to predict and the premium on correct ECB forecasts is increasing significantly.”

Helmut Schleweis, President of the German Savings Banks and Giro Association (DSGV):

“Today’s decision for a real turnaround in interest rates was overdue given the runaway inflation. We have long pointed out that the longer the ECB delays its change of course, the harder it will have to take countermeasures in terms of monetary policy.

Due to the criminal war of aggression in Ukraine and the threat of a gas supply freeze, the time window for the start of significant interest rate hikes has closed even faster than we could have foreseen. Today’s decision by the ECB must be the starting signal for a series of further rate hikes.”

Michael Holstein, chief economist at DZ Bank

“So the big interest rate step, which there had already been speculation about in the last few days. Apparently the pressure from the “hawks” had become too great to take more determined action against the enormously high inflation rates.

The decision could also be a compromise: the big interest rate hike is coming, but at the same time, with the TPI, there is also a relatively generous new instrument to support the heavily indebted countries. Against the background of the government crisis in Italy, the ECB has to make a difficult decision here: not to worry the markets too much, but also not to make itself politically and legally vulnerable.”

Today’s rate hike can only have been the first step in a series. Jörg Asmussen, GDV

Jörg Asmussen, General Manager General Association of the German Insurance Industry (GDV):

“The first rate hike since 2011 is undoubtedly a special moment. It’s late, but it’s right. The capital markets have priced in the turnaround in interest rates for some time.

Today’s 50 basis point hike is justified by eurozone data, despite the advance announcement of a 25 basis point rate hike. At the same time, it is a highly symbolic step that will end the phase of negative interest rates. Still, today’s rate hike can only have been the first step in a series.”

Friedrich Heinemann, economist at the Center for European Economic Research (ZEW):

“It is good that the Governing Council of the ECB has decided to take a big interest rate hike. The return of inflation to the target range is not foreseeable. In addition, the very high consumer price inflation is gradually becoming wage inflation as well, giving the wage-price spiral momentum. In this situation, the Governing Council of the ECB finally had to signal its determination to curb inflation expectations.

While the interest rate decision is therefore to be welcomed, the new transmission protection instrument harbors great dangers. The ECB is thus increasingly becoming the authority that decides whether high national debt can be financed and thus also the fate of governments. This is not compatible with the monetary policy task of an independent central bank.”

More: Read the press conference by ECB President Christine Lagarde