The European Central Bank announced a new rate decision on Thursday.

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European Central Bank announced a new rate hike of a quarter percentage point on Thursday, bringing its key rate to 3.75%.

The latest move completes a full year of consecutive rate hikes in the euro area, after the ECB began its journey to tackle high inflation last July.

“Inflation continues to decline but remains likely to remain very high for a prolonged period,” the bank said in a statement on Thursday.

Headline inflation readings show the rate eased from 6.1% in May to 5.5% in June – still well above the ECB’s target of 2%. The latest inflation data outside the euro area is due next week.

what next?

While market players had expected a hike of 25 basis points, much anticipation remains regarding the ECB’s post-summer outlook. Inflation has eased, but questions remain whether monetary policy is pushing the region into an economic recession.

The central bank did not share any advance guidance on next steps, but raised the prospect of a possible pause in rate hikes in September.

Speaking at a news conference, Christine Lagarde, president of the European Central Bank, said, “Our assessment of the data will tell us how much and how much more work we have to do.”

He said his team is “open-minded” about upcoming decisions and added that the bank could raise rates or keep them steady in September – but it is not certain what it will do.

“The Governing Council will continue to follow a data-dependent approach to determine the appropriate level and duration of sanctions,” the ECB said in its statement.

Lagarde says the ECB has not discussed further cuts to its balance sheet

Pressed by the media, Lagarde added, “We are not going to cut.”

“What is more interesting is that the accompanying policy statement left the door open for further rate hikes and did not adopt a more cautious stance,” said Carsten Brzeski, global head of macro at ING Germany.

Neil Birrell, chief investment officer at Premier Mitton Investors, said in a statement: “If rates haven’t peaked yet, we’re not far away, and talks could soon be on how long they’ll peak.” “

The ECB survey showed corporate debt in the euro area fell to its lowest level between mid-June and early July.

Euro zone business activity data released earlier this week pointed to declines in the region’s biggest economies, Germany and France. These figures have raised hopes that the euro area could be in recession again this year.

The Eurozone is expected to grow by 0.9% this year, the International Monetary Fund said this year but factored in recession in Germany, where GDP is expected to decline by 0.3%.

The ECB also announced on Thursday that it would set the minimum reserves’ remuneration at 0% – meaning banks would not earn any interest from the central bank on their reserves.

market response

The euro was trading at $1.105, down 0.3% against the US dollar following the announcement. The Stoxx 600 gained 1.2%, while government bond yields declined.

The reactions highlight that market players are expecting a possible further rate hike in the euro area.

— CNBC’s Katrina Bishop contributed to this report.

Correction: This article has been updated to reflect that the ECB has raised the prospect of a possible pause on rate hikes in September.


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