- The European Central Bank raised interest rates for the tenth time, continuing its boldest campaign to tighten its monetary policy in the face of stubborn inflation in the euro zone, and at the same time hinted that interest rates have reached levels that will contribute to reducing inflation to the appropriate level if maintained for a long period. The European Central Bank increased interest rates by 25 basis points for the fourth time in a row, bringing the basic refinancing interest rate to 4.5%, the marginal lending rate to 4.75%, and the borrowing interest to 4%, In line with market expectations.
- In a market-shifting statement, the bank also signaled that further rate increases may not be on the agenda for the time being. The euro reacted significantly to this announcement, witnessing a 0.5% decline against the U.S. dollar, trading at $1.0686 at 3 p.m. Frankfurt, Germany time, marking a three-month low. Meanwhile, European stocks, which had been trading cautiously earlier in the day, rallied strongly. The benchmark Stoxx 600 index saw a 1.1% increase.
Why it matters
Leading up to this September's meeting, there was uncertainty among economists and analysts regarding whether the doves or hawks in Frankfurt would prevail. Money markets had indicated roughly a 63% chance of a rate hike through Thursday morning. Inflation concerns have been fueled by reports in the oil market, suggesting tighter supply and higher prices in the coming months and beyond, coupled with indications of wage growth.