(News Bulletin 247) – The European Central Bank is raising its key rates to a historic level. But the markets interpret this increase as the last one after the ECB press release. The CAC 40 is accelerating upwards while the euro is falling against the dollar.

The forecasts were tight for the big meeting of the day, namely the monetary policy decision of the European Central Bank (ECB). “We expect the ECB to raise rates, but the decision is very close, with the market estimating that there is a 50% chance of this happening,” Bank of America noted.

In the end, it was the increase that prevailed, the ECB finally raised its key rates by 0.25 percentage points to bring them to 4%, i.e. their highest since the creation of the euro and the ECB in 1999. This is the tenth consecutive increase to combat still stubborn inflation.

The Frankfurt-based institution also raised its inflation forecasts for 2023 to 5.6% then to 3.2% in 2024. Before hoping for a drop to 2.1% in 2025, getting closer to the ECB medium-term objective set at 2%.

A break to follow?

Now that the ECB has (again) raised its rates to a historic level, the markets are interpreting the press release in favor of a pause in ECB rates. Because the latter implicitly indicates that further increases are unlikely.

“Based on its current assessment, the Governing Council considers that the ECB’s key interest rates have reached levels which, if maintained for a sufficiently long period, will contribute significantly to the return of inflation to the level as soon as possible. of the objective”, explains the central bank in its press release.

“The ECB’s decision to raise interest rates by another 25 basis points today likely ends the current tightening cycle. But given the strength of underlying inflation, we expect rates will remain at this level for at least a year, even if the economy seems to be heading towards a recession”, considers Capital Economics for its part.

In any case, the announcements hit the mark. As for the bond market, the ten-year German Bund rate, the benchmark for the euro zone, fell to 2.613%, around 3:15 p.m., while its French counterpart of the same maturity fell to 3.112% after this supposed end of monetary policy. restrictive of the ECB.

On the currency market, the euro lost 0.5% to 1.0684 dollars, while the pair was still trading at 1.073 dollars at midday. The CAC 40, which was moving around equilibrium before the European Central Bank’s decision on rates, is taking a slightly clearer direction, and accelerating upwards, by 0.90% to 7284.60 points.