European Central Bank
February 2, 2023
The European Central Bank was late to join the rate hiking party. The refinancing rate rate was at zero percent as recently as mid-2022, but officials made up for lost time in the second half of the year, enacting 250 basis points of increase in four incremental moves. Today’s 50-basis point hike to 3.0% matched analyst expectations, and it is to be flankd by a 2.50% deposit rate and 3.25% for the marginal lending facility rate. A released statement telegraphs the intention “to to raise interest rates by another 50 basis points at its next monetary policy meeting in March and it will then evaluate the subsequent path of its monetary policy.” This opens the door to a pause at later meetings that will be decided by incoming data then available and the need to see progress on the dual goals of dampening demand and anchoring long-term inflation expectations. As indicated earlier, officials are also embarking on balance sheet reduction, trimming the APP portfolio at a pace of EUR 15 billion per month starting in March. The pace of that drawdown after midyear will be decided at a later time.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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