ECB Hikes Interest Rates by 25bps Due to Elevated Inflation; Lagarde Declares No Pause

B. Ali
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The European Central Bank (ECB) raised key interest rates by 25 basis points, moderating the pace of recent increases. Nevertheless, if eurozone inflation remains consistently high, further rate hikes can be expected, as the regulator advocates for a “timely return” to its 2% inflation target. Additionally, ECB President Christine Lagarde observed that current rates are not “sufficiently restrictive” yet.

The European Central Bank (ECB) has decided to slow down the pace of raising interest rates in the Eurozone. This decision comes amid concerns about the potential impact of higher rates on the region’s economic growth and stability.

Nevertheless, the ECB remains committed to achieving its 2% inflation target and will continue to closely monitor economic indicators to determine the appropriate course of action for monetary policy in the future.

On Thursday, the European Central Bank’s (ECB) Governing Council opted to increase three crucial interest rates by 25 basis points (bps).

Although the pace of rate hikes has slowed, the monetary authority indicates that additional increases may be on the horizon as the battle to contain inflation persists. “Inflation has remained excessively high for an extended period,” the regulator mentioned in a press release following the board meeting.

Despite a recent decrease in headline inflation, the statement highlights that core inflationary pressures are still elevated.

Starting May 10, 2023, the interest rates for primary refinancing operations, the marginal lending facility, and the deposit facility will be increased to 3.75%, 4.00%, and 3.25%, respectively.

This 25 basis point increase in policy rates represents the smallest hike since the upward adjustments began in July 2022.

Simultaneously, the ECB emphasized that future decisions will aim to ensure “a timely return of inflation to the 2% medium-term target.” Additionally, the bank stated that the “sufficiently restrictive” measures would be maintained “for as long as necessary.”

“We’re not stopping; we have more ground to cover,” says ECB’s Lagarde, calling for further measures.

The European slowdown comes after the United States Federal Reserve’s decision to raise its benchmark interest rate by 25 basis points on Wednesday. Analysts are interpreting the concurrent moves as an indication that this might be the last in the Fed’s series of rate hikes. However, ECB President Christine Lagarde emphasized that European interest rates are not yet “sufficiently restrictive” to curb inflation.

She commented during a press conference following the Governing Council meeting in Frankfurt:

As reported by Reuters, Lagarde asserted that the ECB is “not Fed-dependent,” dismissing the notion that if the US stops raising interest rates, the eurozone’s monetary policy authority must follow suit. She emphasized the “significant upside risks” to inflation that still persist in the shared currency region, while acknowledging that some governors were in favor of a larger rate hike.

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