MNI BRIEF: ECB Says Tightening Effect Likely Intensified In H2

The effects of European Central Bank monetary tightening intensified in the first half of 2023 and are “likely to have increased further in the second half” of the year, the ECB said on Tuesday in a pre-release of its economic bulletin, issued as calls for easier policy build within the Governing Council.

Tightening may have increased in H2 “as a result of the significant lag in the reaction of the services sector”, the bulletin said. The ECB has found that monetary policy shocks --defined as unexpected changes in interest rates—have an impact on manufacturing that is almost twice as strong and around two quarters faster than their impact on services.

The results regarding a further tightening in H2 capture “only the impact of monetary policy shocks and not the broader rise in interest rates”, suggesting a larger effect of recent monetary policy tightening on activity. (See MNI INTERVIEW: ECB Could Discuss Cut Timing In Jan-Centeno)