ECB Lifts Rates to Record Levels Citing Persistent High Inflation

Bridgette Randall
14 Sep, 2023
New York City

European markets traded sideways ahead of the rate decisions and inflation data. 

The European Central Bank raised rates by 25 basis points for its three key lending services as widely expected. 

The central bank policymakers lifted rates for the 10th time in a row and added inflation is likely to stay too high for too long. 

After the increase, the ECB's main refinancing rate rose to a 22-year high to 4.5% and deposit rate to a new record high of 4.0%. Marginal lending facility rate was revised higher by the same amount to 4.75%.   

Despite multiple rate hikes by the central bank inflation has hovered near 5% and significantly ahead of the central bank's target rate of 2%. 

The ECB has raised rates at the end of every policy meeting held since July and cumulatively increased 375 basis points since July 2022. 

The ECB also revised higher its 2023 inflation projection to 5.6% and 3.2% for 2024, reflecting a rebound in energy prices. 

The central bank also revised down its estimate of annual core inflation in 2023 to 5.1%, in 2024 to 2.9% and in 2025 to 2.2%. 

The central bank also confirmed that its asset purchase program portfolio is declining at a "measured and predictable pace" and the bank is no longer reinvesting principal payments from maturing securities.  

 

Europe Indexes & Yields

The DAX index decreased 0.06% to 15,646.76, the CAC-40 index increased 0.07% to 7,227.50 and the FTSE 100 index inched up 0.7% to 7,575.60.

The yield on 10-year German bonds increased to 2.64%, French bonds traded higher to 3.19%, the UK gilts edged up to 4.33% and Italian bonds rose to 4.44%.

The euro edged lower to a three-month low to $1.076, the British pound to $1.246 and the U.S. dollar fetched 89.34 Swiss cents.

Brent crude decreased $1.21 to $93.07 a barrel and the Dutch TTF natural gas decreased €0.85 to €35.97 per MWh.

 

Europe Stock Movers

Air Liquide SA declined 0.4% to €163.66 and the company announced to invest €400 million to build 200 MW Normad'Hy electrolyzer.

Trainline Plc soared 11.2% to 275.40 pence after the online rail ticketing service provider announced a £50 million stock repurchase plan after reporting better-than-expected first-half results. 

IG Group Holdings plc inched higher 1.4% to 677.0 pence after the online trading platform reported a marginal increase in its fiscal first quarter revenue. 

LondonMetric Property plc decreased 0.9% to 173.60 pence after the company announced the sale of a portfolio of industrial estates to Hines for £40.5 million. 

Nordex SE jumped 4.8% to €11.92 after the wind turbine maker won orders in Spain to supply and install 24 N163 turbines to the renewable energy company BayWa r.e. 

Automakers across Europe declined after Beijing blasted the European Commission's investigation into Chinese subsidies to electric vehicle makers. 

BMW, Renault, Volkswagen and Mercedes Benz declined between 2% and 3% on the worries of a Chinese retaliation against the European automakers. 

ThyssenKrupp AG decreased 2.3% to €7.0 after the company said it plans to reorganize its businesses around key technologies that promote decarbonization.