It’s historic. The reference interest rate of the European Central Bank (ECB) was raised on Thursday to its highest level since 1999. After this tenth increase in a row since July 2022, the Frankfurt institution did not explicitly announce a pause in its draconian cycle of monetary tightening.
It indicates in its press release that “the Governing Council considers that the key interest rates of the ECB have reached levels which, maintained for a sufficiently long period, will strongly contribute to the return of inflation to the level as soon as possible. ‘objective “.
Keep the direction
The ECB has chosen to stay the course, fourteen months after launching the fastest and largest rate increase cycle in its history, by 4.50 percentage points to date. A decision that she justifies by asserting that “if inflation continues to slow, it will still remain too high for too long a period”. The ECB also raised its inflation forecasts for 2023 and 2024 on Thursday, due to the impact of energy prices.
The monetary institution’s new macroeconomic projections forecast a price increase of 5.6% in 2023, then 3.2% in 2024 and 2.1% in 2025, approaching the medium-term objective of 2.0 %.
Curb economic activity
The 0.25 percentage point rate increase decided on Thursday, as in July, brings the bank liquidity deposit rate at the ECB, which refers, at 4.00%, to the highest since the creation of the ECB in 1999. The aim of the ECB is to continue to slow down economic activity so that companies and businesses stop raising prices, and so that their employees moderate wage demands, which tend to fuel inflation.
“The fear of not fully controlling inflation and the risk of stopping too soon must have been a greater concern than the growing risk of recession in the euro zone,” commented Carsten Brzeski, of the ING bank, after decision. But he also believes that the ECB announced on Thursday “the final increase” in the monetary tightening cycle.