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BOV Market Watch - Week ending 22nd July 2022
22 Jul 2022

European Central Bank raises interest rates for first time in 11 years. The European Central Bank (ECB) on Thursday raised its key interest rates by half a percentage point, the first increase in more than a decade and a bigger hike than expected, as it ramped up its fight against record high inflation. In a surprise move the ECB raised its negative base rate up by half percentage points to zero percent, after economists forecasted a smaller 0.25 point increase. The ECB is in a delicate balancing act, attempting to control inflation (see next item) without placing too much stress on the fragile European economy, which has been hit hard by external shocks over the last few years.

Eurozone inflation rises to 8.6 percent, the highest ever. Eurozone inflation accelerated as estimated in June to set a fresh record high, driven by higher energy and food prices, latest data from statistics agency Eurostat confirmed on Tuesday. Eurostat confirmed its earlier estimate that consumer prices in the 19 countries sharing the euro rose 8.6 percent year-on-year in June, marking another record jump after an 8.1 percent rise in May and a 7.4 percent increase in April. As expected, the biggest impact on inflation was energy, which contributed 4.19 percentage points to the inflation figure and is now running at 42 percent year-on-year. That was followed by food, alcohol, and tobacco, with a 1.88 percentage point contribution, services, and then non-energy industrial goods.

US home sales continued to slide in June. A report released by the National Association of Realtors (NAR) on Wednesday showed that sales of previously owned homes in the US fell by much more than expected in June. Existing home sales tumbled by 5.4 percent in June from the prior month to a seasonally adjusted annual rate of 5.12 million, the NAR said on Wednesday. That’s lower than the 5.37 million economists were expecting. Compared with the same month last year, sales fell by 14.2 percent. The US housing market is rapidly cooling as record prices and rising mortgage rates put pressure on home sales, locking out potential buyers.

UK inflation hits fresh 40-year high. UK inflation hit a new 40-year high in June, deepening the cost-of-living crisis and piling increasing pressure on the Bank of England (BOE) to deliver an aggressive interest-rate increase next month. The consumer price index rose by 9.4 percent annually, according to estimates by the Office for National Statistics published on Wednesday. This is slightly above economists’ forecasts and up from 9.1 percent in May. BOE Governor Andrew Bailey said that the bank is likely to consider raising interest rates by half a percentage point at its next meeting to help control inflation. The central bank has raised rates five times since December, with the last increase of a quarter-point in June that sent its key rate to 1.25 percent.

China’s central bank leaves interest rates unchanged as economy falters. The People’s Bank of China (PBOC), China's central bank left its key interest rate unchanged, in line with market expectations. The PBOC held its one-year loan prime rate (LPR) at 3.7 percent, while the five-year rate was maintained at 4.45 percent. The bank had cut the five-year rate from 4.60 percent in May. The LPR is fixed monthly based on the submission by 18 banks, although the central government has influence over the rate-setting. This lending rate replaced the central bank's traditional benchmark lending rate in August 2019. China's economy grew by just 0.4 percent in the second quarter from the same period last year, down sharply from 4.8 percent growth for the first three months, the government said on Friday, as widespread lockdowns in the face of coronavirus outbreaks of the world's second-largest economy.

 

 

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).