The European Central Bank (ECB) increased its main refinancing rate by
50 basis points to 3.50 percent on Thursday, as expected. The ECB’s interest rates on the marginal lending facility and the deposit
facility were also hiked by 50 basis points each to 3.75 percent and 3.00
percent, respectively.
In its policy statement, the ECB said:
- Inflation is projected to remain too high for too long;
- Elevated level of uncertainty reinforces the importance of
data-dependent approach to Governing Council’s policy rate decisions;
- Governing Council is monitoring
current market tensions closely and stands ready to respond as necessary to
preserve price stability and financial stability in euro area;
- Eurozone’s banking sector is resilient, with strong capital and
liquidity positions;
- ECB’s policy toolkit is fully
equipped to provide liquidity support to eurozone’s financial system if needed
and to preserve the smooth transmission of monetary policy;
- ECB staff now sees inflation averaging 5.3% in 2023, 2.9% in 2024 and
2.1% in 2025 (forecasts were done before financial market tensions);
- GDP is expected to grow 1.0% in 2023, 1.6% in both 2024 and 2025