January 30, 2023

ECB raises rates, sees significant increases as it announces plan to reduce balance sheet

European Central Bank President Christine Lagarde attends a hearing of the Committee on Economic and Monetary Affairs at the European Parliament on November 28, 2022 in Brussels, Belgium.

Thierry Monasse | Getty Images News | Good pictures

The European Central Bank raised interest rates by a small range of 1.5% to 2% at its Thursday meeting.

It also said it would start cutting by an average of 15 billion euros ($16 billion) per month from the beginning of March 2023 until the end of the second quarter of 2023.

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It said it would announce more details about its asset-buying plan to reduce stocks in February and would continue to review the pace of the decline to ensure it was consistent with its monetary policy strategy.

The widely expected 50 basis point hike would be the central bank’s fourth hike this year.

It is It was raised by 75 basis points in October and 50 basis points in September and July, bringing rates out of negative territory for the first time since 2014.

“Governing Council judges say that interest rates will need to rise significantly at a more sustainable pace to reach sufficiently restrained levels to ensure a timely return of inflation to the 2% medium-term target,” the ECB said in a statement.

The central bank said it was operating on “significantly revised” inflation forecasts and expected inflation to remain above its 2% target until 2025.

It now expects average inflation of 8.4% in 2022, 6.3% in 2023, 3.4% in 2024 and 2.3% in 2025.

However, it sees a recession in the region as “relatively short-lived and shallow”.

ECB President Christine Lagarde is scheduled to hold a press conference at 2:45pm CEST.

This comes after the latest inflation data for the euro zone showed a slight slowdown Price hike in NovemberEven if the rate is 10% annually.

The US Federal Reserve on Wednesday increased its vital rate 0.5 percentage points, as it did Bank of England And Swiss National Bank Thursday morning.

“Contrary to the Bank of England, it’s a hawkish rise [quantitative tightening] and a firm opening date,” said analysts at BMO Capital Markets.

However, they noted that the ECB is lagging behind other central banks in reducing its balance sheet and that reinvestments under its pandemic emergency purchase program will continue.

“The language in the report has its operational feel, and the bank leaves QT’s path open,” they wrote in a note.