The European Central Bank joins the war against inflation

The European Central Bank joins the war against inflation

“This important step advances the transition from the current highly flexible level of interest rates to levels that guarantee the timely return of inflation to the ECB’s medium-term target of 2%,” the central body said in a statement.

Monetary policymakers had wavered for weeks between a 50 and 75 basis point hike, but a new jump in headline and core inflation appears to have settled the debate as figures indicate price growth is filtering through. throughout the economy, which makes its eradication even more difficult.

In fact, the ECB has increased its inflation forecasts again, raising the outlook for 2023 from 3.5% to 5.5% and placing the 2024 rate at 2.3%, above its 2% target.

Markets were little surprised, however, as investors had already estimated the probability of a 75 basis point move at more than 80%, though economists polled by Reuters were more divided, showing only a slim majority expecting a move. major movement.

Despite the strong increase, further rate hikes are likely, according to the ECB.

“In the next meetings, the Governing Council plans to raise interest rates further to curb demand and protect itself from the risk of a persistent upward shift in inflation expectations,” the ECB added.

Ahead of the meeting, conservatives at the ECB feared that anything short of a sharp rate hike would indicate the ECB was not serious about its inflation-fighting mandate, which is officially its only goal.

There is a risk that already high long-term inflation expectations could rise, leading to a loss of confidence in the ECB and raising questions about the bank’s inflation targeting framework.

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