The European Central Bank hikes rates by 50 basis points

The European Central Bank hikes rates by 50 basis points and promises another hike in March

Christine Lagarde, President of the European Central Bank, speaks at an event.

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The European Central Bank confirmed expectations of a 50 basis point interest rate hike on Thursday, raising interest rates to 2.5%.

In a statement, it pledged to “stay the course and raise rates significantly at a steady pace,” saying in unusually firm language it intended to hike another 50 basis points in March.

It was said that keeping interest rates at restrictive levels would control inflation by dampening demand and keeping inflation expectations low. Decisions at future meetings are data-dependent, it said.

The move follows four rate hikes in 2022 that took eurozone interest rates out of negative territory for the first time since 2014.

ECB President: Fiscal and monetary policy must work together

Euro-zone inflation fell for the third straight month in January, flash figures released on Wednesday showed, but headline inflation remained buoyant at 8.5%. Core inflation, which excludes energy and food, was unchanged at 5.2%.

Attention now turns to Lagarde’s speech and press conference on Thursday, which begins at 2:45 p.m. Frankfurt time, for an indication of the central bank’s latest economic outlook and more details on its plans for hikes and quantitative tightening.

In December, it announced that starting in March, it would start reducing its €5 trillion ($5.49 trillion) balance sheet by an average of €15 billion per month by the end of June 2023.

On Thursday, she said that in line with current practice, she will continue to partially reinvest her maturing debt.

“The remaining reinvestment amounts will be allocated proportionally to the proportion of redemptions in all constituent programs of the APP (Asset Purchase Program) and under the Public Sector Purchase Program (PSPP) to the proportion of redemptions of each jurisdiction and national and supranational issuer,” the statement said Explanation.

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