The 50-bp hike sends a clear message that price stability remains a cardinal objective of the ECB…reports Asian Lite News
The European Central Bank (ECB) on Thursday raised interest rates by another 50 basis points (bps), citing spiraling inflation in the eurozone.
After the rate hike, the interest rates on the main refinancing operations, on the marginal lending facility and on the deposit facility will be increased to 3.5 percent, 3.75 percent and 3 percent, respectively.
“Inflation is projected to remain too high for too long,” the central bank said in a statement. The decision reflected the bank’s determination to bring inflation down to its 2 percent target.
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The 50 bps rate hike on Thursday was pre-committed at the ECB Governing Council’s previous rate-setting meeting. The latest 50 bps hike of interest rates by the ECB was in February.
The latest ECB staff macroeconomic projections in March revised down inflation forecasts in the eurozone, with ECB staff projecting inflation to be 5.3 percent in 2023, 2.9 percent in 2024 and 2.1 percent in 2025.
In contrast, the underlying price pressures remain strong, the central bank said. Inflation excluding energy and food, which is also referred to as core inflation, is projected to average 4.6 percent in 2023, higher than the December projections.
While price pressures remain high, economic growth projections are looking up. The ECB staff expects the eurozone economy to grow by 1 percent in 2023 and by 1.6 percent in 2024 and 2025.
After the hike, the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility will be increased to 3.5 percent, 3.75 percent and 3 percent, respectively.
Before the rate-setting meeting, speculations of a 25-bp rate hike swirled as observers reckoned that a 50-bp hike might risk compounding the financial distress of some financial institutions.
“Inflation is projected to remain too high for too long,” the ECB said in a statement on Thursday.
The 50-bp hike sends a clear message that price stability remains a cardinal objective of the ECB.
“We are not waning on our commitment to fight inflation,” said the ECB President Christine Lagarde in reply to a question at the press conference held here on Thursday.
As energy prices dropped sharply in the euro area, inflation slipped to 8.5 percent in February. Lagarde disclosed that there are signs of price hikes easing in some areas, but pressures remain high.
Inflation excluding energy and food increased to 5.6 percent in February, and other indicators of underlying inflation have also stayed high, said the ECB statement.
The latest ECB staff macroeconomic projections in March revised down inflation forecasts in the euro area, with ECB staff seeing inflation at 5.3 percent in 2023, 2.9 percent in 2024 and 2.1 percent in 2025. “If our baseline was to persist when the uncertainty reduces, we know that we have a lot more ground to cover,” Lagarde remarked.
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