ECB raises interest rates by 25 basis points to record level
Investing.com | Author Scott Kanowsky
Published Sep 14, 2023 08:10AM ET
Investing.com -- The European Central Bank has hiked interest rates to a record high as policymakers look to address elevated inflation in the eurozone despite signals that the region's economy is weakening.
It is the tenth straight rate increase by the Frankfurt-based bank since it was widely seen to have misjudged the speed of price gains early last year. The move brings the ECB's main refinancing operations, the interest rates on the marginal lending facility and the deposit facility up to 4.50%, 4.75% and 4.00%, respectively.
"Inflation continues to decline but is still expected to remain too high for too long," the ECB said in a statement, reiterating its goal of returning price growth to its 2% medium-term objective in a timely manner. "The rate increase today reflects the Governing Council’s assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission."
But the ECB seemed to suggest that this will likely be its final hike for some time, noting that rates have now reached levels that "maintained for a sufficiently long duration, will make a substantial contribution" to cooling inflation.
Prior to the decision, debate swirled around how officials would adjust borrowing costs to account for stubbornly high price growth and flagging economic activity.
Preliminary readings showed that inflation in the eurozone is now more than twice the ECB's 2% target. However, the bank's long-standing monetary tightening campaign, coupled with similar policy shifts by central banks across the world and weakness in China, have begun to hit the broader eurozone economy. Manufacturing is suffering, while lending has slumped and services have showed early signs of strain, contributing to concerns that the region may slip into a recession.
"The fear of not getting inflation fully under control and the risk of stopping too early must have been a larger concern than the rising recession risk in the eurozone," said analysts at ING, in a note.
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