ECB Raises Interest Rates by 25 Basis Points


ECB Increases Interest Rates in Expected Move

On Thursday, the European Central Bank (ECB) announced that it would raise interest rates by 25 basis points. The increase was anticipated, but it represents a slowing down from the more aggressive 50-point hikes that have recently been implemented. In a statement, the ECB's Governing Council warned that the outlook for inflation continues to be "too high for too long," adding that underlying price pressures remain uncertain. 

ECB Remains Cautious About Further Increases

While policymakers did not commit to a further increase at the ECB's next meeting in June, they did say that any future rate movements will be based on the impact of upcoming economic and financial expectations for inflation. "The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction," the ECB said. 

Interest Rate Adjustments

The interest rate for the ECB's main refinancing operations will rise to 3.75%, while the deposit facility rate will climb to 3.25%, and the marginal lending facility rate will move up to 4.00%. The ECB also stated that it will continue to reduce its balance sheet by €15 billion per month until the end of June.

Inflation and Credit Growth Concerns

Recent inflation data out of the euro zone had suggested that a more dovish approach from the ECB might be warranted, as core prices - a key gauge of inflation for the central bank - remained above the 2% medium-term target. However, the ECB's latest decision shows a continued effort to curb price growth. Additionally, an ECB survey of lending data for March showed that banks were making it more difficult for borrowers to get credit. This, along with weak credit growth, could be leaving clear marks on the economy.

Analysts' Views

According to ING analysts, "The ECB has entered the final stage of its rate hike cycle. Although recent data has confirmed that underlying inflationary pressure is stickier than expected, weak credit growth and the latest results of the Bank Lending Survey have indicated that the rate hikes so far are leaving clear marks on the economy." The ECB's cautious approach reflects the continued uncertainty surrounding inflation and economic growth in the euro zone.

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