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ECB Raises Rates by 50 Basis Points, More Than Expected, Amid Record Inflation

Published 07/21/2022, 07:56 AM
Updated 07/21/2022, 08:28 AM
© Reuters.

© Reuters.

By Geoffrey Smith 

Investing.com -- The European Central Bank raised its key interest rates on Thursday for the first time in over 11 years, going beyond its own guidance as it tries to bring down inflation from record highs.  

The ECB said it will raise the rate on its deposit facility, which provides the effective floor to euro money market rates, by 50 basis points to 0%, ending a nine-year experiment with negative official interest rates. The refinancing rate and the marginal lending rate will also rise by 50 basis points respectively to 0.5% and 0.75%.

The bank had said at its last meeting that it intended to raise the deposit rate by 25 basis points in July, with a larger hike possible in September depending on the progress of inflation. The annual rate of inflation in the Eurozone rose by more than expected to 8.6% in June, according to data released earlier this week by Eurostat, prompting an abrupt recalculation by the central bank.

As a result, the ECB signaled it would no longer provide forward guidance, which it has used for over 10 years, overwhelmingly to reassure them that there would be no immediate tightening of policy. 

"The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions," it said, adding that future actions would be "data-dependent". 

The euro rose on the news, hitting $1.0260, a gain of 0.8% on the day.

The central bank said it had taken its surprisingly aggressive decision having simultaneously approved a new policy instrument that is intended to be a kind of safety net for government bond markets. The so-called 'Transmission Protection Instrument' aims to keep volatility in Eurozone government bond markets within reasonable levels but is unlikely to stop long-term market rates rising in absolute terms as it raises official ones. 

"The TPI...can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area," the ECB said in its statement, adding that there will be no 'ex-ante' limit to the scale of interventions made under the program and noting that their scale "depends on the severity of the risks facing policy transmission".

ECB President Christine Lagarde will hold her regular press conference at 08:45 AM ET (1245 GMT), a quarter of an hour later than usual.

 

Latest comments

negative interest rates should be accessible to regular customers
More than expected? You guys printed that it was going to be 75bp so how is 50 ps expected,,,anyways looks like someone in the fed wanted theirs or their friends PUTS to print tomorrow...CRIMINAL.
The US rate increase is expected to be 75bp. The ECB is Europe's Central Bank. Has nothing to do with the Fed.
The US rate increase is expected to be 75bp. The ECB is Europe's Central Bank. Has nothing to do with the Fed.
The US rate increase is expected to be 75bp. The ECB is Europe's Central Bank. Has nothing to do with the Fed.
so, the collapse of EU because PIGS is inevitable, no wonder Draggi quit first ...
Draghi bankster wanted to run away much sooner lol
❤️❤️
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War Pigs have a problem, don't they?
The story will soon be “is inflation sticky?” And yes we have two years of 7-9% per year coming if we dont push rates higher than this quickly
I concur… .50 is a laugher!
They are behind the curve…
wake up and smell the stink
stock market is acting like as if ecb cut 50 bps. it is whopping 50 bps UP.
reaction to the dollar drop
Let’s be realistic here, a .50 bump from the ECB is not enough! They have now lost whatever little credibility they had left.. inflation in the EU will continue its ascent and the Euro will suffer the consequences of it all.. look for more instability coming out of the EU… Starting with Draghi and Italy
Still Euro will short
still eur will short
still eur will short
is it good or bad?
the more the bad news the more mkt will fly
Let it begin!
Welcome rate hike !Are you a real savior of the market?
No
No
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