The European Central Bank has raised interest rates by another 0.25% as inflation remains above targets
The European Central Bank (ECB) made a significant move by raising its three main interest rates by 0.25%. Prior to this decision, analysts were divided over whether the eurozone’s central bank would continue its streak of consecutive rate hikes or pause the increases.
However, alongside the rate hike announcement, the ECB conveyed its belief that it had possibly reached a point where rates had been increased sufficiently to potentially rein in inflation. This indication hinted that the series of rate hikes might come to a halt in the near future.
The ECB stated, “Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”
Furthermore, it added, “The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.”
The changes resulting from this decision include the main refinancing operations rate, typically charged to commercial lenders for borrowing money and arguably the most pivotal of the three, which now stands at 4.5%.
Additionally, the deposit facility rate, paid to lenders depositing funds with the ECB on a short-term basis, has risen to 4%.
Lastly, the marginal lending facility rate, paid by commercial lenders for short-term liquidity injections, has been set at 4.75%.
https://x.com/ecb/status/1702302071003730374?s=20
Eurozone Inflation to Decrease More Gradually than Previously Forecasted, Says ECB
The European Central Bank (ECB) has revised its inflation outlook, indicating that inflation in the eurozone will decline at a slower pace than projected three months ago. The bank now anticipates an annual inflation rate of 5.6%, compared to the previous estimate of 5.4% in June.
During a news conference, ECB President Christine Lagarde emphasised that while inflation is on a downward trajectory, it is still expected to persist at levels considered excessively high for an extended period. She stated, “Inflation continues to decline but is still expected to remain too high for too long,” and affirmed the ECB’s commitment to ensuring that inflation returns to their medium-term target of 2% in a timely manner.
In response to a question regarding the consecutive interest rate hikes, Lagarde conveyed that they cannot definitively state that they have reached a peak at this juncture. She emphasised that future decisions regarding interest rate increases would hinge on data and economic conditions, underlining the ECB’s data-dependent approach.
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