The Governing Council of the European Central Bank (ECB) is raising its three key interest rates by 75 basis points (0.75%), the institute announced on Thursday followingnoon. As of 2 November, the ECB’s deposit rate will thus be doubled, going from 0.75% to 1.5%, which corresponds to what financial circles were expecting. This rate was still in negative territory last July. This is the third consecutive hike in European rates and the second in a row by 75 basis points, a pace similar to that of the US Federal Reserve.
“Inflation remains far too high and will remain above target for an extended period,” said the ECB, whose target is 2% in the medium term, in its press release. In September, the rise in prices reached 9.9% in the euro zone. Energy prices rose by more than 14% and food prices by 11.8% during the month. Without these two items, so-called “core” inflation rose to 4.8% in September, according to the ECB. The institution also specifies that it plans to continue to raise key interest rates according to the evolution of the inflation and economic outlook, meeting by meeting.
“Progress, but still a long way to go”
“We have made progress but there is still a long way to go” in terms of normalizing monetary policy, said Christine Lagarde during the press conference following the announcement of the rate hike. Describing an economic environment marked by high inflation and a higher probability of recession, the ECB President clarified that the pace and extent of future rate hikes will be determined according to inflation forecasts, the effect measures taken previously and taking into account the time it takes for these measures to take effect.
Asked regarding the possibility that the rise in rates will cause a recession, Christine Lagarde said she was “aware of this risk”, affirming that the fight once morest inflation will also benefit the most vulnerable populations and that “today’s decision today (Thursday, editor’s note) is the most appropriate, we will continue”.
In addition, the conditions on loans granted to banks during the pandemic, known as TLTRO and exceeding 2000 billion euros, will also be tightened. The other ECB interest rates will be raised to 2% (for the main refinancing operations) and 2.25% (for those of the marginal lending facility).
