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The European Central Bank hiked interest rates by 50 basis points Thursday, bringing the rates on its main refinancing operations and deposit facility to 3.5% and 3%, respectively, as it anticipates inflation will remain “too high for too long.”
The ECB’s Comments: In the Governing Council’s statement, the ECB said it carefully observes market tensions and remains ready to act as warranted to safeguard price stability and financial stability in the eurozone.
The banking industry is “resilient” due to its robust capital and liquidity positions, the council’s statement said.
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The ECB emphasized that it is prepared to provide liquidity to maintain the smooth transition of monetary policy if necessary. In contrast to the previous statement, there are no pledges for future rate hikes.
President Christine Lagarde will likely provide more guidance on this front during the press conference. The ECB also revised its macroeconomic predictions, but stressed the calculations were made prior to the recent emergence of financial market tensions, implying that inflation and growth estimates are subject to more uncertainty in the coming months.
Inflation is expected to average 5.3% in 2023, 2.9% in 2024, and 2.2% in 2025. The ECB’s average baseline projection for growth in 2023 has been increased to 1%.
The Market Reaction: The euro and iShares MSCI Eurozone ETF EZU were muted as investors await more clarity from Lagarde.
The markets interpreted the move as a dovish hike and now price the ECB’s terminal rate at 3%.
The euro (EUR/USD) slipped 0.4% to 1.055 after the statement, before rebounding to 1.059 as of the time of writing. The EZU ETF is down 0.48% on the day.
ECB President Christine Lagarde. Photo via Shutterstock.
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Image and article originally from www.benzinga.com. Read the original article here.