The ECB raised interest rates by a quarter of a percentage point. At the monetary policy meeting in Berlin, the Governing Council decided to raise the three reference rates by 25 basis points: the rate on deposits rises from 2.25% to 2.50%, that on main refinancing to 2.65%, and that on marginal loans to 2.90%. The decision was expected with almost certainty by investors.
The new levels will be in effect from September 16th.
The conflict in the Middle East and price pressures
«The conflict in the Middle East continues to generate pressure on inflation, which is expected to remain at levels well above the target for a prolonged period – explains the ECB -. Today’s decision underlines the Governing Council’s commitment to setting monetary policy in a way that ensures that inflation stabilizes at the 2% target over the medium term.”
Upside risks for inflation, downside risks for growth
«The outlook remains very uncertain, with risks oriented upwards for inflation and downwards for economic growth. Regarding the energy shock, the new scenarios formulated by our experts illustrate the wide range of outcomes for the evolution of growth and inflation based on different hypotheses on the intensity and duration of the shock, as well as on indirect and second-round effects”, continues the statement. With today’s decision, the Governing Council ‘remains well placed to address the uncertainty caused by the conflict’ and will follow ‘a data-driven approach, whereby decisions are taken on a case-by-case basis at each meeting’ to define the appropriate direction.
Lagarde: «Unanimous and obvious choice»
“The decision taken today on rates was unanimous” and was “an obvious choice”, said ECB President Christine Lagarde at a press conference in Berlin. The future of the cost of money, he added, will be decided “at each meeting, but I can tell you that we are determined to reach our objective” of 2% inflation.