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The European Central Bank on Thursday lifted interest rates in the eurozone by 25 basis points, in a decision supported by a ‘solid majority’ of governors.
Thursday’s decision by the ECB Governing Council took the interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility to 4.50%, 4.75% and 4.00%, respectively.
It means the Frankfurt-based central bank has hiked its policy rates by a cumulative 450 basis points during the current tightening cycle.
‘Some governors would have preferred to pause...but I can tell you there was a solid majority of the governors,’ President Christine Lagarde said in a press conference shortly after the decision, adding it was not the practice to give specific numbers.
Lagarde also warned that the eurozone economy will likely stay ‘subdued’ in the coming months, with risks to economic growth ‘titled to the downside.’
‘The rate increase today reflects the Governing Council’s assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission,’ the ECB said in its policy statement.
It added that, based on its current assessment, it believes interest rates have reached levels that, when maintained for a ‘sufficiently long duration’, will make a ‘substantial contribution to the timely return of inflation to the target.’
In a press conference shortly after the decision, Lagarde emphasised this wording when asked whether Thursday’s decision meant the door was open for more hikes.
‘Sufficiently restrictive - that’s number one. For as long as necessary - that’s number two. Those are really the two parameters that are going to guide us, not forgetting the three components that have guided our reasoning so far,’ Lagarde said.
The central bank reaffirmed that it would continue to follow a data-dependent approach, with particular attention to the inflation outlook, the dynamic of underlying inflation, and the strength of monetary policy transmission.
The September ECB staff macroeconomic projections for the euro area now see average inflation at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025.
This represents an upward revision for 2023 and 2024 and a downward revision for 2025 which had predicated average inflation at 5.4%, 3.0%, and 2.2%, respectively.
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