European Central Bank increased rates by 50 basis points, which pledges more hikes in March

February 3, 2023: On Thursday, the European Central Bank confirmed expectations of a 50 basis point interest rate surge, which takes its key rate to 2.5%.

In the statement, it pledged to “stay the course in increasing interest rates significantly at a steady pace” and, in powerful language, said it intended to hike by around 50 basis points in March.

It stated that restricting rates would control price increases by dampening the market. Decisions at future meetings will be data-dependent, it states.

The move follows four hikes in 2022, bringing eurozone rates out of the negative territory for the first time since 2014.

On Wednesday, as flash formations showed, eurozone inflation decreased for the third month in January, but headline inflation endured a high of 8.5%. Core inflation, excluding energy and food, was muted at 5.2%.

“Price pressures remain strong, partly because high energy costs are spreading throughout the economy,” ECB President Christine Lagarde said in a press forum following the announcement.

Discussing the euro zone’s economic picture, she noted growth had slowed to 0.1% in the fourth quarter and was expected to remain weak in the near term, with continued geopolitical uncertainty and tighter financing constraints weighing on growth.

However, she resumed, “The risks to the outlook for economic growth have become more balanced,” noting gas supplies were more secure, supply pressures were easing, consumer confidence was improving, and rising wages and lower energy prices would boost consumption.

“Overall, the economising has proved more resilient than expected and should improve over the coming quarters,” she said.

Lagarde also said states should roll back support on energy prices to avoid driving up medium-term inflationary pressures.

Sylvain Broyer, the chief EMEA economist at S&P Global Ratings, said it now seemed the ECB’s rate cycle would peak in the 3 to 3.5% range, but it was difficult to be precise from Thursday’s announcement.

“The reading of the European economy remains complex, as it is subject to opposing and asynchronous forces. It would not be ready to assume that the ECB will cut rates at the end of this year,” Broyer displayed.