ECB raises interest rates by 25 basis points

Investing.com — The raised interest rates by 25 basis points as expected on Thursday, marking a slowdown from a recent string of more aggressive 50-point hikes.

In a statement, the ECB’s Governing Council warned that the outlook for inflation continues to be “too high for too long,” adding that underlying price pressures remain uncertain.

Policymakers also refrained from committing specifically to a further increase at the ECB’s next meeting in June, saying only that any future rate movements will be based on the impact of upcoming economic and financial expectations for inflation.

“The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction,” the ECB said.

The interest rate for the ECB’s main refinancing operations will rise to 3.75%, while the will climb to 3.25%, and the will move up to 4.00%. The ECB also said it will continue to reduce its balance sheet by its current rate of €15 billion (€1 = $1.1023) per month until the end of June.

Speaking to reporters, ECB president Christine Lagarde noted there was “almost unanimous” support for a smaller uptick in interest rates. She suggested as well that this may not be the final rise in its current policy tightening campaign.

“It was sensible […] to return to a more standard increment with the understanding that based on the information we have today we have more ground to cover and we are not pausing,” Lagarde said.

Leading up to the decision, inflation data out of the eurozone helped to somewhat bolster the case for a more dovish approach from the ECB, which has made curbing price growth a top priority. – a key gauge of inflation for the central bank which strips out volatile items like energy and food – inched lower in April to 5.6%. However, that reading remained well above the ECB’s stated 2% medium-term target. At the same time, also edged higher for the first time in six months to 7%.

Elsewhere, the ECB’s quarterly showed that banks were making it more difficult for borrowers to get their hands on credit, even as demand for loans faltered.

“The ECB has entered the final stage of its rate hike cycle,” analysts at ING said in a note. “Although recent data has confirmed that underlying inflationary pressure is stickier than expected, weak credit growth and the latest results of the Bank Lending Survey have indicated that the rate hikes so far are leaving clear marks on the economy.”

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