ABN AMRO: Central bank EU will not get inflation back to 2% in 2023

Last year, central banks worldwide started raising interest rates at a rapid pace, including the European Central Bank (ECB). But we are now more than a year later since the central bank started this, and inflation is still high. ABN AMRO thinks that the ECB is not able to bring inflation back to 2%.

Inflation down in fits and starts

That explained ABN AMRO On Bank.nlaccording to a press release shared with Crypto Insiders. The ECB decided in May to raise interest rates again, although it only raised 0.25% that month. Interest rate hikes have a dampening effect on the economy and, in theory, on inflation, because it becomes less attractive to borrow money.

Meanwhile, Dutch inflation rose to 5.2% in April, compared to 4.4% in March. According to one estimate, inflation even rose to 6.1% in May. This suggests that higher interest rates are not very effective at taming inflation at the moment.

ABN-AMRO economist Jan-Paul van de Kerke takes a somewhat gloomy view. “The upward trajectory of inflation has come about in fits and starts. We expect the same to be true for the decline,” he said. The bank is less certain about the ECB’s goal of bringing inflation back to 2%. In any case, this would not be possible before 2024.

Bank.nl notes that people have been able to borrow for years at an interest rate of practically 0%. They are simply not used to interest rates being as high as they are now. The interest rate hikes would have a clear effect on the housing market, as it is already slowly cooling down. In theory, this is beneficial for people looking for a home, but the high interest rates also make it more difficult to find an affordable mortgage.

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Inflation difficult for ECB

Many people in 2022 mainly looked at the Federal Reserve, the central bank of the US. The ‘Fed’ has had much more room to raise interest rates than the ECB. Europe has a much larger government debt, which makes it less able to raise interest rates.

Although these bonds are declining in value due to the high interest rates, it is also becoming a lot more difficult to refinance the debt. That is the problem for the US right now, but the EU has had this problem since interest rates have risen.

For crypto this can mean two things. First of all, it could mean that high inflation will lead to even higher interest rates. If various assets then fall, cryptocurrencies may fall just as hard. It may also mean that interest rates are now so high that they cannot be raised any further because of the government debt. That could be beneficial for the crypto market.

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