MAGGIE PAGANO: Christine Lagarde’s rate hike balancing act


Lagarde’s rate hike balancing exercise: ECB boss may find a soft-soft approach is more appropriate, says MAGGIE PAGANO

All eyes will be on the European Central Bank (ECB) meeting in Frankfurt today to see if council members dare to push interest rates higher than markets expect.

Some ECB members would argue for a 50 basis point hike rather than the 0.25 hike that has been reported until recently.

The more hawkish members say now is the time to act aggressively to quell inflationary pressures and contain demand.

Tough call: European Central Bank boss Christine Lagarde faces a tricky decision on a eurozone interest rate hike

On the other hand, some members fear that higher borrowing costs could tip the eurozone into recession, especially if Russia shuts off gas supplies to Europe this winter, even though Nord Stream 1 is due soon. be returned to service.

But the decision – to go big to stifle inflation – is still wide open and expected to be hotly debated. This is the first interest rate hike since 2011, and difficult to balance for the President of the ECB, Christine Lagarde.

It must also ensure that too large a rise does not hurt some of the most indebted countries in the euro zone, such as Italy, and will announce a new program of bond purchases to reduce their borrowing.

His decision is made more complicated by ECB forecasts that lower energy costs, loosening supply chains and a return to more normal monetary policy will lead to lower inflation without action. too hasty on rates.

Its latest forecast predicts annual eurozone inflation at 6.8% in 2022, falling to 3.5% in 2023 and 2.1% in 2024.

Andrew Bailey, the Governor of the Bank of England, has a similar dilemma. He warned in his annual town hall address this week that while the prospect of a 50 basis point interest rate hike will be discussed at next month’s monetary policy committee meeting, the amount was not not set in stone.

As he says, there’s a trade-off between raising rates too much to try to rein in inflation — now at 9.4% — and depressing demand too much, leading to weak growth and higher wage demands.

Even May’s growth figures, which showed a slight uptick, should be treated with caution, he says.

Central bankers on both sides of the Channel should have acted sooner to quell inflation and reduce quantitative easing. But with signs that some commodity prices are falling, now may not be the time to go beyond that with too big a rate hike.

Softy-softly is perhaps more appropriate.

Treasury Hotline

As I suspected, the main reason for SoftBank’s decision to put Arm’s float on ice is not because of the UK’s so-called ‘political turmoil’ – but rather the difficulties of to organize such an ambitious dual listing on the New York and London stock exchanges.

Listing both simultaneously has never been done before.

One of the problems has been the sheer amount of basic documentation required to clear the regulatory and accounting hurdles required by the US watchdog, the Securities and Exchange Commission and the UK’s Financial Conduct Authority.

According to a banker, the preparation of the prospectuses was a nightmare, with too much duplication and overlapping.

Another factor contributing to the decision to take a break is the dire state of the global IPO market which has nearly seized up due to fragile financial markets, even as investors are awash with money.

Still, that doesn’t mean the dual list is dead. Far from there. Indeed, SoftBank’s Masayoshi Son was persuaded of the benefits of going for a double hit because of the depth of liquidity provided by having such a large pool of investors from the Big Apple and London, and to have Arm in the FTSE 100 as well as the S&P 500.

It’s amazing that it’s so difficult, especially since the countries share a common language.

But there is something that could be done to help speed up the process: the UK Treasury and the US Treasury have the power to make it easier for regulators to approve certain deals.

Whoever gets to No 11 in September needs to bring back his former chief investment guru, Lord Grimstone, and get in line with the US Treasury.

nuclear reaction

Some good news on the energy front: planning has finally been approved for the £20bn Sizewell C nuclear reactor.

It will supply electricity to 6 million homes and generate thousands of jobs.

Now all it needs are investors.


About Author

Comments are closed.