ECB raises interest rates by 25 basis points
05 May 2023
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The European Central Bank (ECB) on Thursday raised interest rates by 25 basis points, marking a slowdown from a recent string of more aggressive 50-point hikes.
Accordingly, the interest rate for the ECB's main refinancing operations will rise to 3.75 per cent, while the deposit facility rate will climb to 3.25 per cent, and the marginal lending facility rate will move up to 4.0 per cent. The ECB also said it will continue to reduce its balance sheet by its current rate of €15 billion (€1 = $1.1023) per month until the end of June.
The ECB's governing council has warned that the outlook for inflation continues to be "too high for too long," adding that underlying price pressures remain uncertain.
Policymakers also refrained from committing specifically to a further increase at the ECB's next meeting in June, saying only that any future rate movements will be based on the impact of upcoming economic and financial expectations for inflation.
"The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction," the ECB stated in a release.
Speaking to reporters, ECB president Christine Lagarde noted there was "almost unanimous" support for a smaller uptick in interest rates. She also suggested that this may not be the final rise in its current policy tightening campaign.
"It was sensible [...] to return to a more standard increment with the understanding that based on the information we have today we have more ground to cover and we are not pausing," Lagarde said.
ECB’s decision was based on inflation data for the eurozone which somewhat bolstered the case for a more dovish approach. Core inflation, based on prices of volatile items like energy and food, inched lower in April to 5.6 per cent. However, that reading remained well above the ECB's stated 2 per cent medium-term target. At the same time, headline inflation also edged higher for the first time in six months to 7 per cent.
Meanwhile, the ECB's quarterly Bank Lending Survey showed that banks were making it more difficult for borrowers to get their hands on credit, even as demand for loans faltered.
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