by Balazs Koranyi and Francesco Canepa
FRANKFURT (Reuters) – The European Central Bank raised interest rates by 25 basis points on Thursday, a smaller rise than previous ones, and announced that it would stop reinvesting cash from maturities of securities acquired in the framework of the APP from July.
The central bank’s deposit rate, the one at which it remunerates banks’ deposits with it, is now at 3.25%, whereas it was negative in the spring of 2022.
This decision brings to a total of 375 basis points the increase in rates in the euro zone since last July, an unprecedented tightening in the history of the single currency justified by the fight against soaring prices.
The bank gave no indication of these upcoming initiatives.
“Future decisions by the Governing Council will ensure that key interest rates are set at sufficiently restrictive levels to ensure that inflation returns to the level of the 2% medium-term objective as soon as possible”, can we read in a press release.
Rate decisions will continue to be based on assessing “the outlook for inflation given economic and financial data, underlying inflation dynamics and the strength of monetary policy transmission”, it added. the ECB.
ECB President Christine Lagarde is due to comment on the decisions at a press conference from 12:45 GMT.
Arguing for a more moderate rate hike, eurozone gross domestic product barely rose in the first quarter and banks tightened access to credit, raising the risk of a real “credit crunch”. “and an even greater slowdown in growth.
Core inflation also decelerated last month, to 7.3% year on year.
Most major central banks are now holding back on monetary policy tightening, with hikes limited to 25 basis points, and the US Federal Reserve even paved the way for a possible pause in the cycle on Wednesday.
“The information available broadly confirms the assessment of the medium-term inflation outlook made by the Governing Council at its last meeting,” the institution said.
But like other central banks, including the Bank of England, the ECB may not be done with rising borrowing costs as inflation could take years to return to its target of 2%.
Although inflation has fallen sharply since last fall, underlying tensions remain, suggesting that price growth may be stabilizing above target.
These risks are exacerbated by tensions in the labor market, especially as wage growth has been stronger than expected and the unemployment rate has fallen to a historic low despite a climate close to recession.
(Report Balazs Koranyi and Francesco Canepa, Laetitia Volga, edited by Kate Entringer)
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