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ECB Hikes Interest Rate by 0.50 Percent: “Inflation is Expected to Remain too High too Long”

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27 comments on ECB Hikes Interest Rate by 0.50 Percent: “Inflation is Expected to Remain too High too Long”

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ECB Statement

Here is a link to the ECB’s Statement on today’s policy decision. 

Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target. The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.

The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.

The new ECB staff macroeconomic projections were finalised in early March before the recent emergence of financial market tensions. As such, these tensions imply additional uncertainty around the baseline assessments of inflation and growth. Prior to these latest developments, the baseline path for headline inflation had already been revised down, mainly owing to a smaller contribution from energy prices than previously expected. ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. At the same time, underlying price pressures remain strong. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in the December projections.

The Governing Council decided to raise the three key ECB interest rates by 50 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.50%, 3.75% and 3.00% respectively, with effect from 22 March 2023.

The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission. 

There is a bit more in the statement, but those are the key ideas. 

No US news agency that I could find linked to the report, a pet peeve of mine. 

Bank Contagion Spreads to Europe, Credit Suisse Sinks to a New Record Low

Yesterday I noted Bank Contagion Spreads to Europe, Credit Suisse Sinks to a New Record Low

Also, Bond Market Volatility Rises the Most Since the Great Recession

The Fed panicked over the stress with a bank bailout. The ECB didn’t. Bond volatility is in part due to Fed panic. 

This post originated at MishTalk.Com.

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Mike Shedlock

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27 Comments
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Oldest Most Voted
Casual_Observer2020
Casual_Observer2020
3 years ago
As long as there is money moving the price of commodities that has nothing to do with real supply and real demand, inflation will persistent. The rates don’t even matter to the investment banks and hedge funds that have enough capital already. They simply use it to speculate in commodity derivatives.
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MPO45v2
MPO45v2
3 years ago
German inflation at 8.7% and not budging…what did anyone expect other than a 50?
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1-shot
1-shot
3 years ago
Only those who have abused and overused debt have problems with rising interest rates. For those who live within their means and actually save partbof their earnings, higher interest rates are a plus since they can finally earn more interest on their savings without taking on excessive risk.
SVB and the others are proof that debt can sink both companies (banks included) and individuals if we overborrow and undertake risky investments. Economics 101.
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JeffD
JeffD
3 years ago
The US panic was over saving the political donors, not the bank.
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8dots
8dots
3 years ago
SPY flipped up day #1.
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FromBrussels2
FromBrussels2
3 years ago
….better late than never I d say…. at last some common sense within the ECB!
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whirlaway
whirlaway
3 years ago
Well, that is certainly not surprising. The central banks’ strategy is : QE to support the capitalist class, and rate hikes to suppress the labor class.
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StukiMoi
StukiMoi
3 years ago
Reply to  whirlaway
“..and rate hikes to suppress the labor class.”
Only because rates are only hiked from three orders of magnitude too low, to only a tiny bit less than that.
If they were instead hiked to bring the USD, and EUR, back to where outstanding credit being somewhere around 20x central banks’ Gold holdings: Anyone competent enough to perform any useful labor at all; would do very, very well indeed.
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whirlaway
whirlaway
3 years ago
Reply to  StukiMoi
Whatever the explanation may be, there can be no justification for raising rates AND doing QE *simultaneously*. Unless it is driven by the motivation to support the capitalist class and also screw the working class at the same time.
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StukiMoi
StukiMoi
3 years ago
Reply to  whirlaway
“Unless it is driven by the motivation to support the capitalist class and also screw the working class at the same time.”
Duh!
Just as a thought experiment: What else could even theoretically possibly, be an excuse for forming ANY central bank?
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StukiMoi
StukiMoi
3 years ago
Reply to  StukiMoi
Oh: And the correct name for the “class” you are referring to, is not the “capitalist” class; but rather the “rentier” class.
Capitalists are, per definition, risk takers and (at a minimum aspiring) producers of value. They lose if they misjudge, and live by their ability to satisfy real demand in a price competitive fashion. Being in a competitive environment, they want costs of inputs; like rents, and insurance and all else; lower. Never higher.
The “Rentier” Class, are what the idles who benefit from central banks, QE, manipulated interest rates, zoning laws, mandates etc., are referred to. Leeches who produce nothing of value, but are being propped up and privileged solely on account of their closeness to central banks, juntas and “the system.” Those are the ones who, since they are unable to produce anything of value no matter what, personally benefit from totalitarian states artificially making things they have inherited been handed by the ed and State scarcer, hence more expensive: Keeping other people starving and homeless, by banning them from building the home anyone with any competence at all could easily build if he was not banned from doing so.
It’s a real shame that the past century’s near universal, publicly funded, indoctrination rackets; have left the majority of Americans unable to count beyond one-two-many. So they are stuck conflating capitalists and rentiers as if they both simply belonged to some undifferentiable mush of “many.” While in economic reality; the rentiers are just as much leeching off of capitalists, as they do off of labor.
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  whirlaway
The correct spelling is kaputalism, not capitalism if you understand my germanics.
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Doug78
Doug78
3 years ago
Reply to  whirlaway
I own a company that makes all black clothes for those who want to overthrow the corrupt capitalist system. Our new Spring line is coming out soon with new boldly aggressive styles guaranteed to strike fear into the heart of the fascists. With warmer weather brought on by Global Climate Change our diversity aware designers have conceptualized an innovative black shorts and T-shirt combination with matching kneepads to keep you cool while you fight in the streets the minions of greedy capitalists and industrialists. Comrade, I would like to add you to our list of worthy individuals who will get first choice at the new items. Order now at Fphbeeye.com and get 10% off plus a free black umbrella for purchases above $200. Power to the People!
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Doug78
Do you have a lightweight summer ninja suit that covers everything except the eyes?
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Doug78
Doug78
3 years ago
Reply to  Lisa_Hooker
Yes! With extra padding in strategic parts to distract the cops and attract the tops!
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1-shot
1-shot
3 years ago
Reply to  Doug78
I urge you to go get a true understanding of fascism (and since you use the word “Comrade” so freely, communism as well). Too many folks in thiscountry throw those words around, along with socialism, with absolutely no knowledge of what they realky are.
Spend a few months down in Venezuela “comrade” and see how you like it. I doubt you’d last even a few days. Capitalism is by no means perfect, but its way better than the alternatives.
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Doug78
Doug78
3 years ago
Reply to  1-shot
Venezuela and Cuba are where we make our Antifa wear! Because our cause is just we have no labor problems and the costs are less than in capitalist societies where the blood-sucking ruling class siphon off the profits.
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KidHorn
KidHorn
3 years ago
Reply to  1-shot
Doubt many who have lived in a communist country voted for Bernie.
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KidHorn
KidHorn
3 years ago
Reply to  whirlaway
I thought higher rates reward savers?
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Bam_Man
Bam_Man
3 years ago
Reply to  KidHorn
Only if banks pass them along – which they are not doing.
That is why deposits are fleeing.
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KidHorn
KidHorn
3 years ago
Reply to  Bam_Man
CD rates have gone up a lot in the last year. At least in the US.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  KidHorn
No one rewards savers anymore, I think it may be unpatriotic to save now.
Besides, there are too few of them for their votes to be significant.
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  Lisa_Hooker
Unpatriotic savers, should be investigated by FBI if they aren’t some kind of Russian plot.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  whirlaway
whirlaway, you have it backwards. QE’s inflation hurts the labor classes who lack alternatives. Rate hikes make existing capital more valuable benefiting fixed income rentiers.
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HippyDippy
HippyDippy
3 years ago
Reply to  Lisa_Hooker
And all the volatility is orchestrated by the very people who can take advantage of it. Amazing how that works.
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whirlaway
whirlaway
3 years ago
Reply to  Lisa_Hooker
The labor class is a much larger group of people than the group of fixed income rentiers.
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KidHorn
KidHorn
3 years ago
Should be great news for Credit Suisse. They have to pay even higher rates to keep deposits from going to ECB banks. My gut tells me the ECB is aware of this and is punishing the swiss for not being a member.
If Barclays or Royal Bank of Scotland gets in trouble, the ECB will hike over 1%.
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