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

Economy Jul 21, 2022 08:28AM ET
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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.

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

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Comments (18)
Intricate Cypher
Intricate Cypher Jul 21, 2022 1:57PM ET
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negative interest rates should be accessible to regular customers
Marco cuevas
Marco cuevas Jul 21, 2022 10:29AM ET
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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.
Christopher Haylett
Christopher Haylett Jul 21, 2022 10:29AM ET
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The US rate increase is expected to be 75bp. The ECB is Europe's Central Bank. Has nothing to do with the Fed.
Christopher Haylett
Christopher Haylett Jul 21, 2022 10:29AM ET
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The US rate increase is expected to be 75bp. The ECB is Europe's Central Bank. Has nothing to do with the Fed.
Christopher Haylett
Christopher Haylett Jul 21, 2022 10:29AM ET
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The US rate increase is expected to be 75bp. The ECB is Europe's Central Bank. Has nothing to do with the Fed.
ottin nerner
ottin nerner Jul 21, 2022 9:30AM ET
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so, the collapse of EU because PIGS is inevitable, no wonder Draggi quit first ...
Maks Mars
Maks Mars Jul 21, 2022 9:30AM ET
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Draghi bankster wanted to run away much sooner lol
Sujit Deore
Sujit Deore Jul 21, 2022 9:29AM ET
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❤️❤️
Sujit Deore
Sujit Deore Jul 21, 2022 9:28AM ET
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❤️❤️
Art Carrano
Art Carrano Jul 21, 2022 9:15AM ET
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War Pigs have a problem, don't they?
James Pattison
James Pattison Jul 21, 2022 9:04AM ET
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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
Jack Peterson
Jack Peterson Jul 21, 2022 9:04AM ET
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I concur… .50 is a laugher!
James Pattison
James Pattison Jul 21, 2022 9:03AM ET
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They are behind the curve…
Kerry Ditto
Kerry Ditto Jul 21, 2022 9:02AM ET
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wake up and smell the stink
Kerry Ditto
Kerry Ditto Jul 21, 2022 8:58AM ET
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stock market is acting like as if ecb cut 50 bps. it is whopping 50 bps UP.
Jose Mibaresh
Jose Mibaresh Jul 21, 2022 8:58AM ET
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reaction to the dollar drop
 
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