June 4, 2023

The European Central Bank reduces the pace of monetary tightening and raises interest rates by 25 basis points

The European Central Bank (ECB) decided on Thursday (4) to reduce the pace of its monetary tightening, opting for a 25 basis point increase in interest rates. The (principal) refinancing rate increased from 3.50% to 3.75%, the interest rate on deposits from 3.0% to 3.25%, and the interest rate on marginal loans from 3.75% to 4.0%.

In the past three meetings, the European Central Bank decided to raise interest rates by 50 basis points.

The Monetary Authority attributed the decision to the possibility that inflation will remain very high for a long time to come, as well as in light of the persistent high inflationary pressures.

Nominal inflation has eased in recent months, but underlying price pressures remain strong. At the same time, past interest rate increases have been passed aggressively on to euro area financing and monetary conditions, while delays and the strength of the transition to the real economy remain uncertain,” the bank said in its comment.

The ECB also informed that future monetary policy decisions will ensure that reference rates are raised to sufficiently restrictive levels to achieve a return of inflation to the medium-term target of 2%. and that it will be maintained at these levels for as long as necessary.

The Board will continue to use a data-driven approach to determining the appropriate level and duration of restraint. In particular, monetary policy decisions will continue to depend on its assessment of inflation expectations in light of available economic and financial data, underlying inflation dynamics and the strength of monetary policy transmission.

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