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ECB hikes 3 key interest rates by 25 bps; price pressures stay strong

04 May '23

2 min read

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Insights

In light of the ongoing high inflation pressures, the European Central Bank today raised three key interest rates by 25 basis points.
Though headline inflation across the EU has declined over recent months, underlying price pressures remain strong.
The rates will be brought to restrictive levels so that inflation returns to the 2 per cent medium-term target.

In light of the ongoing high inflation pressures, the European Central Bank (ECB) today raised three key interest rates by 25 basis points. Though headline inflation across the European Union (EU) has declined over recent months, underlying price pressures remain strong. The inflation outlook continues to be too high for too long.

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.75 per cent, 4 per cent and 3.25 per cent respectively with effect from May 10.

The ECB governing council’s future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2 per cent medium-term target and will be kept at those levels for as long as necessary, a press release from ECB said.

It will keep reducing the Eurosystem’s asset purchase programme (APP) portfolio at a measured and predictable pace and expects to discontinue the reinvestments under the APP as of July 2023.

The Asset purchase programme (APP) portfolio is declining at a measured and predictable pace, as the Eurosystem does not reinvest all of the principal payments from maturing securities.

The decline will amount to €15 billion per month on average until the end of June 2023. The governing council expects to discontinue the reinvestments under the APP as of July 2023.

Regarding the Pandemic Emergency Purchase Programme (PEPP), the governing council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024.

In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance, the ECB added.

Fibre2Fashion News Desk (DS)

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