The ECB is “not done” with its battle to reduce inflation, and will raise rates further at its next governors meeting in Julythe president of the Eurobank said on Thursday Christine Lagarde a few hours after the increase in interest rates by 0.25%, decided today by the Bank’s board of directors. Interest rates are now at a 22-year hightheir highest level since 2001.

“We have not yet reached our destination. We still have a way to go. Therefore, we are not thinking of stopping. For this in July we will proceed with a new interest rate increase“, said Christine Lagarde.

Both the current one and the “prejudiced” July’s decision, as she explained, is due to inflation even though it is decelerating remains at fairly high levels for a long time. In May, inflation fell to 6.1% from 7% in Aprilis far from him ECB’s 2% target. At the same time, core inflation, excluding energy, food, alcohol and tobacco prices, remains high despite decelerating slightly to 5.3% in May from 5.6% in April.

Referring to the inflation outlook, the head of the ECB pointed out that previous increases in energy costs continue to raise prices across the economy.

Alongside, pressures for wage increases are, according to the ECB, an increasingly important source of inflation. The earnings per employee increased by 5.2% in the first quarter of the year and wages by 4.3%.

Today’s decision, for the eighth in a rowan increase in interest rates by 0.25%, reflects the extremely uncertain – according to the ECB – outlook of the eurozone economy for economic growth and inflation.

According to the new forecasts inflation is expected to close this year at 5.1% against 5.3% which was the forecast in March, however in 2024 and 2025 the new forecast is more unfavorable. Specifically in 2024 inflation is estimated to decline to 3% from 2.9% which was the previous prediction, whereas for 2025 it is predicted to be 2.3% from 2.1% predicted in March.

At hand, the forecasts for the course of the economy were also revised, predicting that GDP will grow this year by 0.9% (versus 1% which was the March forecast) by 1.5% in 2024 (from 1.6% which was the previous forecast) while unchanged at The forecast for GDP growth in 2025 remained at 1.6%

After today’s increase, the deposit rate is now set at 3.5% while the equivalent for the main refinancing operations at 4%. It is noted that after today’s decision interest rates return to the level they were in 2001. The ECB slowed the pace of its rate hike to 25 basis points at its May meeting after back-to-back hikes of 75 and 50 basis points. However, since July last year, when the cycle of increases began, interest rates have increased by a total of 4%, dragging up the cost of servicing loans.

It is noted, however, that the rise in interest rates does not affect the cost of servicing mortgagesafter the Greek banks’ decision to impose a “moratorium” by freezing interest rates.

The ECB finds that borrowing costs have skyrocketed, after the latest increases, and the pace of new lending is slowing. Tighter financing conditions are a key reason why inflation is forecast to fall further towards target, as they are expected to further constrain demand.

Today, moreover, the ECB’s d. s decided the termination of the APP bond purchase program at the end of June. Thus, from the beginning of July, the ECB will stop reinvesting the amounts derived from the bonds that are in its portfolio and are expiring.

In contrast to the bonds bought by the ECB in the pandemic program the Bank will continue to reinvest the redeemed securities until the end of 2024.