- Prior decision
- Main refinancing rate 4.50% vs 4.25% expected
- Prior 4.25%
- Deposit facility rate 4.00% vs 3.75% expected
- Prior 3.75%
- Marginal lending facility 4.75%
- Prior 4.50%
- Inflation continues to decline but is still expected to remain too high for too long
- Past rate hikes continue to be transmitted forcefully
- Financing conditions have tightened further and are increasingly dampening demand
- ECB considers that key 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 key rates will be set at sufficiently restrictive levels for as long as necessary
- ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction
- Full statement
The gist of it is that the ECB has indicated that interest rates have peaked i.e. we are at a terminal rate already. The euro has fallen on the headlines as the ECB also lowers its economic projections significantly. Here’s the details:
- 2023 GDP at 0.7% (previously 0.9%)
- 2024 GDP at 1.0% (previously 1.5%)
- 2025 GDP at 1.5% (previously 1.6%)
- 2023 inflation at 5.6% (previously 5.4%)
- 2024 inflation at 3.2% (previously 3.0%)
- 2025 inflation at 2.1% (previously 2.2%)
It reads as a dovish hike as the communique hints that this is likely the last rate hike that the ECB will deliver for now. But I reckon Lagarde will try to spin things to be more hawkish later on i.e. that they can still hike if needed. That being said, I wouldn’t be one to buy up the euro on that, as mentioned earlier here.