The European Central Bank is divided between raising interest rates again or seeking other policies to avoid a strong economic recession.
The weakness of the Euro exchange rate against the dollar and inflation, which does not stop growing and is already stands at 8,9% in the Euro zone, worries the European Central Bank (ECB), which is thinking about tightening its monetary policies, with the aim of reducing volatility and thus achieving its objective of keep inflation at 2%.
In July, following the lead of the US Treasury, the ECB implemented a rise in interest rates of 0,5 points. This sudden performance caught everyone's attention, as it was the first time in more than twenty years that the organization applied these types of harsh policies.
Despite the fear of causing a recession in the euro zone, the institution has decided to move forward with its strategy to curb inflation and plans further increases in interest rates.
Some members of the ECB, such as the Irishman Philip Lane, have proposed even tougher climbs than July, with increases of up to 50 basis points. However, other members of the organization prefer smaller increases, of only 25 basis points, so as not to cause an economic crisis that slows down the growth of the area.
The European Central Bank fears causing an economic recession
Despite having suggested that they will continue to apply this type of tough monetary policies, Fabio Panetta, member of the ECB council, warns that they must reduce the risk of causing a recession.
“The probability of a recession is increasing,” Panetta said. “If we have a significant slowdown or even a recession, this would mitigate inflationary pressures.”
Panetta has also noted that, while adjustments to monetary policies are possible and have worked well, central banks need to be prudent in their decisions.
In this sense, the ECB advice is divided, since many councilors follow Panetta's approach and They reject abrupt increases in interest rates. At the same time, they argue that the best thing would be to adopt a policy of normalization, to curb the growing fear of a new economic crisis.
And what do the markets expect? According to Bloomberg data, the markets are betting on two new uploads of half a point (50 basis points each) between now and October, with the first of them planned for September 8.
How can rising interest rates affect cryptocurrencies?
In scenarios with low interest rates, users often look for investments with higher interests, looking for products with higher risk, such as cryptocurrencies. However, when interest rates are high or growing, users tend to adopt more conservative measures and avoid risky investments.
However, during the recent rises in FED interest rates, cryptocurrencies reacted positively, following the bullish momentum of S&P 500 and Nasdaq indicators.
Despite this, many specialists have pointed out that it is not advisable to be too optimistic and that it is better to wait to see what happens in the future if interest rate increases by Central Banks are repeated.
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