ECB Hiked Rates by 50 Basis Points, Lowered Inflation Estimates

Brian Turner
16 Mar, 2023
New York City

The European Central Bank lifted its key lending rate by 50 basis points and said it is ready to provide more liquidity if banks need it. 

"Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, 

in line with its determination to ensure the timely return of inflation to the 2% medium-term target," noted the statement released by the European Central Bank. 

After the latest rate hike, the deposit rate will increase to 3.0%, the rate on the marginal lending facility will increase to 3.75% and refinancing operation to 3.50%. 

The European Central Bank has been raising rates as inflation stays near four-decade high and shows little sign of easing. 

The overall inflation in February in the 20-member Euro Area was estimated at 8.5%, significantly higher than the central bank's target level of 2%.  

The recent inflation surge was driven by a sharp jump in energy price but now the inflationary forces are fueled by price increase in food, industrial goods and services. 

The central bank said inflation in the Euro Area is expected to cool to 5.3% in 2023 and 2.9% in 2024 from 6.3% and 3.4% in December. 

and revised higher its baseline estimate of the economic growth from its previous projection in December to 1.0% in 2023.

The economic expansion is expected to gain a slight pace to 1.6% in 2024 and 2025. 

President Christine Lagarde was keen to highlight that the recent market turmoil is different from what transpired during the global financial crisis of 2008. 

"The euro area banking sector is resilient, with strong capital and liquidity positions. 

In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy," noted the statement released by the European Central Bank.