The European Central Bank has increased interest rates by 75 basis points, its biggest rate hike in over two decades on inflation concerns.
The European Central Bank’s (ECB’s) Governing Council has increased interest rates by 75 basis points. That’s the biggest ECB rate hike in over two decades. This makes the ECB somewhat late to the group of central banks including the Fed, which may make a similar 75bps move later in September, raising interest rates aggressively to combat inflation. There are likely more ECB hikes to come.
Nonetheless, the message from the ECB is now similar to that of other major Western nations concerned about high inflation. Eurozone rates may ‘catch up’ with other central banks in 2023 if they remain on this hawkish path for interest rates.
It is interesting that the ECB has been slower to raise rates than the U.S., since arguably the European inflation outlook is worse given the bleak outlook for European energy markets.
Symbolically, this moves brings an end, at least for now, to negative interest rates for the Eurozone, and so the special measures associated with that are now withdrawn.
However, another major initiative the ECB’s major asset purchases remain in place as the ECB continues to reinvest principle under the APP and PEPP initiatives until at least 2024, on current guidance.
