Estimates of large increase confirmed – Statements from Christine Lagarde expected
In an increase in its base rate by 0.75% the European Central Bank proceeded a while ago. So the base interest rate from 0.5% is now set to 1.25%.
As the ECB announced after its Governing Council meeting, this move is an important step in attempting to transition from the current extremely low level of interest rates to levels that will ensure a timely return of inflation to the ECB’s medium-term target of 2%.
Based on its current assessment, the Governing Council expects to raise interest rates further in the coming meetings to dampen demand and guard against the risk of a persistent upward shift in inflation expectations. The Governing Council will regularly reassess the course of its policy in light of incoming information and the evolving outlook for inflation. The Governing Council’s future rate decisions will continue to be data-driven and take a meeting-by-meeting approach.
The Governing Council took today’s decision and expects to raise interest rates further because inflation remains very high and is likely to remain above target for a long time. According to Eurostat’s preliminary estimate, inflation reached 9.1% in August.
Regarding the interventions of the ECB in the bond market, the Central Bank will continue to reinvest the maturing securities in the portfolio it has acquired under the PEPP (pandemic) program until the end of 2024.
It also declares that it will use the tool to protect the transmission of monetary policy (Transmission Protection Instrument) if this is deemed necessary.
It is noted that most analysts were discounting an increase in the key interest rate by 0.75%, after the new rise in inflation in the eurozone. Despite this, several members of the ECB’s governing board had argued with their statements that it would be more appropriate to follow a less aggressive policy on the interest rate front with smaller increases.
The president of the ECB is expected to present the reasoning behind today’s decision in more detail, the next steps in monetary policy, as well as the ECB’s assessments of the course of the European economy later Christine Lagarde at the scheduled press conference
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