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 hinted that monetary policy tightening may continue to keep the economy under control. inflation.

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 ECB signaled that further hikes were still likely, given price and wage pressures.

While the US Federal Reserve paved the way for a possible pause in its rate hike campaign on Wednesday, the ECB is not currently considering such a scenario.

“We are not taking a break, it is very clear,” said its president Christine Lagarde during a press conference. “We know we have a long way to go.”

She added that there were still significant risks on inflation – notably due to recent wage settlements and high corporate profit margins – and that financial conditions were not yet tight enough.

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”, possibly read in the press release.

The ECB also announced that from July it would stop reinvesting the amounts resulting from the maturing of securities acquired under the APP, a program of asset purchases of 3.200 billion euros.

The central bank of the 20 countries sharing the euro has therefore decided to limit its rate hike to 25 basis points, an early decision by many experts after lackluster statistics in recent weeks and moderation from other institutes. resignation.

Eurozone gross domestic product barely grew in the first quarter and banks tightened access to credit, raising the risk of a real credit crunch and further slowdown most important to growth.

Core inflation also decelerated last month, to 7.3% year on year.

“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.

On the bond market, the ten-year German Bund yield reduced its gains and is balanced around 2.252% and European equities slightly reduced their gains, the Euro Stoxx 50 index yielding 0.45%.

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 and Jean-Stéphane Brosse)

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