The European Central Bank (ECB) has elevated its interest rates to a peak not seen in 22 years, while concurrently increasing its inflation forecasts.
The Governing Council decided in favour of lifting the key deposit rate for the eurozone by 25 basis points, shifting from 3.25pc to 3.5pc. This marks the eighth consecutive time that the ECB has hiked rates, and it notably happened just one day following the US Federal Reserve’s decision to halt its streak of ten straight hikes.
Alongside these rate hikes, the ECB also updated its inflation expectations across the eurozone. The bank now expects inflation to hit 5.4pc in 2023, 3pc in 2024, and 2.2pc in 2025 – this is a slight increase of 0.1 percentage point from its March forecasts for each of the upcoming three years.
In an issued statement, the Governing Council conveyed that future decisions aim to drive the ECB’s key interest rates to sufficiently restrictive levels to accomplish a timely return of inflation to the 2pc medium-term target, and to maintain these levels as long as necessary.
Christine Lagarde has strongly hinted at the possibility of further interest rate hikes across the eurozone at the forthcoming meeting of the ECB Governing Council. She expressed:
Is our task accomplished? Is the journey over? Not yet.
Is there still territory to traverse? Indeed, we have more ground to cover.
Unless there’s a significant alteration to our basic assumptions, it’s highly probable that we’ll persist with rate increases in July.
This is due to our resolute commitment to achieve our goal promptly and to persistently adhere to the principles we have implemented today.
