The European Central Bank (ECB) raised its key rates by 25 basis points, slowing the pace of previous increases. However, as inflation in the eurozone remains consistently high, future rate hikes can still be expected, with the regulator insisting it will continue to seek a “quick return” to its 2% inflation target. and ECB President Christine Lagarde saying rates are not “tightly enough” yet.
The ECB accelerates interest rate hikes in the eurozone
The Governing Council of the European Central Bank (ECB) decided to raise three key rates by 25 basis points (bps) on Thursday. While slowing rate hikes, the monetary authority signaled that future increases are possible as its fight to control inflation continues.
“The inflation outlook remains too high for too long,” the regulator said in a press release after the board meeting. He explained that while headline inflation has declined over the past few months, underlying price pressures remain strong.
The interest rates for the main refinancing operations, the marginal lending facility and the deposit facility will be increased to 3.75%, 4.00% and 3.25% respectively, from 10 May 2023, the announcement detailed. The 25 basis point increase in policy rates is the smallest since the hike began in July 2022.
At the same time, the ECB underlined that future decisions of the board will aim to ensure “a rapid return of inflation towards the medium-term objective of 2%”. He also said the “sufficiently restrictive” levels will be maintained “as long as necessary”.
‘We are not stopping, we have more ground to cover,’ insists ECB’s Lagarde
The slowdown in Europe follows the U.S. Federal Reserve’s decision to raise its benchmark interest rate by the same 25 basis points on Wednesday, with analysts interpreting accompanying statements as hinting it could be the last of the Fed’s own series of hikes.
However, ECB President Christine Lagarde clarified that European interest rates are not yet “sufficiently restrictive” to bring down inflation. Speaking at a press conference after the Board of Governors meeting in Frankfurt, she said:
We are not stopping, that is very clear. We know we have more ground to cover.
Quoted by Reuters, she insisted that the ECB was “not dependent on the Fed”, rejecting the idea that if the United States suspended its rate hikes, the regulator of monetary policy in the euro zone should do the same. She pointed to the “significant upside risks” to inflation that remain in the common currency area and admitted that some governors favored a bigger rate hike.
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