For the eighth time in a row, the European Central Bank (ECB) has decided to raise its interest rates: as expected by the markets, the main monetary institution of the European Union announced, Thursday, June 15, to raise its rates by a quarter of a point, bringing its deposit rate to 3.50%, its highest level in twenty-two years.
Headline inflation in the euro area is expected to average 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025, not far from the 2% target set in term. GDP growth is expected at 0.9% this year, against 1.0% previously forecast, then 1.5% in 2024 and 1.6% in 2025.
“Future decisions by the Governing Council will ensure that the key ECB interest rates are set at sufficiently restrictive levels to ensure that inflation returns to the 2% target level as soon as possible over the medium term. term, and that they are maintained at these levels for as long as necessary,” the central bank said in a statement.
The Board also approved the end on July 1 of reinvestments under the APP (Asset Purchase Programme), which is around 3,200 billion euros. A decision that will not take anyone by surprise since it was previously announced.
Further increase expected in July
In the aftermath of the US Federal Reserve’s pause in its cycle, observers wondered how big the rate hikes are coming in the euro zone and how long rates will stay high.
“It is very likely that we will continue to raise our rates in July,” ECB President Christine Lagarde said. “We still have a long way to go. We did not arrive at our destination,” she added.
Inflation in the euro zone, at 6.1% year-on-year, remains at a higher level than in the United States and excluding unprocessed food products and energy, price growth is slowing down slowly.
This is what encourages the ECB to persevere, in particular after having been taken on the wrong foot at first by the surge in prices and started to raise rates a few months behind the other major issuing institutes. .