At its meeting today, the Governing Council decided to increase the three key interest rates by a further 25 basis points each. The interest rate for the main refinancing operations and the interest rates for the marginal lending and deposit facilities will thus rise to 4.5 percent, 4.75 percent, and 4.00 percent. Florian Heider, Scientific Director of the Leibniz Institute for Financial Research SAFE, comments on this decision:
“The ECB remains true to its mandate and is pursuing a rigorous course of successive rate hikes to combat persistently high inflation. Crucially, there is a risk that inflation will move away from the two percent target in the future. This was not necessarily expected, as the market signals – inflation and the economy – are moving in different directions. However, this is only a 25 basis point increase. Thus, the ECB is signaling an end to rate hikes.
The situation is difficult, so the ECB is taking a data-driven approach. On the one hand, the previous rate hikes have had an effect, which can be seen in lending and the fact that economic growth has slowed. On the other hand, we do not yet see a fragile economy; European labor markets remain strong, and the war and crisis-related supply shock has faded. Nevertheless, core inflation is currently well above the stated target of two percent and thus persistent. This stubbornness was the reason for today's decision.
It takes time for monetary policy measures to take full effect, and we are now at the point where the interest rate hikes of recent months are starting to be felt. With a relatively small rate hike, the ECB is not giving away any cards. It will be exciting if the economy and inflation continue to diverge, which is unlikely but still possible.”
Scientific Contact
Prof. Dr. Florian Heider
Scientific Director
