ECB delivers a dovish 25bps rate hike today. The accompany statement indicated that the current tightening cycle could have reached its peak already. Also, core inflation and growth forecasts for 2024 and 2025 were revised down.
The newly set rates are as follows: main refinancing operations rate at 4.50%, marginal lending facility rate at 4.75%, and deposit facility rate at 4.00%.
ECB President cited the persistent nature of inflation being “too high for too long” as the primary motivator behind this strategy to “reinforce progress” in ushering inflation back to the target in a “timely manner”.
ECB added, “the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”. Future decisions will “ensure” that the interest ares are set at “sufficiently restrictive levels for as long as necessary.
In the new economic projections, inflation is forecast to be at 5.6% in 2023 (prior projection at 5.1%), 3.2% in 2024 (prior 3.0%) and 2.1% in 2025 (prior 2.3%). Â The upward revision for 2023 and 2024 mainly reflects a higher path for energy prices.
Core inflation is projected to average 5.1% in 2023 (unchanged), 2.9% in 2024 (prior 3.0%), and 2.2% in 2025 (prior 2.3%).
Growth is projected to be at 0.7% in 2023 (prior 0.9%), 1.0% in 2024 (prior 1.5%), and 1.5% in 2025 (prior 1.6%).
