It was an open secret. At the end of its meeting on Thursday, the European Central Bank (ECB) announced an increase in its main key rates. Only the extent of the increase remained to be determined: it will ultimately be 0.75%. “The Governing Council has decided to increase the three key ECB interest rates by 75 basis points. Accordingly, the interest rates for the main refinancing operations, the marginal lending facility and the deposit will be increased to 2.00%, 2.25% and 1.50% respectively from November 2, 2022”, confirms a press release from the institution. This is the third significant and consecutive increase in 2022.
This approach was becoming almost unavoidable for the ECB, which started the tightening of its monetary policy late and who must now carry out a catch-up mission against the American Federal Reserve (Fed). “Inflation remains far too high and will remain above target for an extended period. Eurozone inflation in September reached 9.9%. In recent months, soaring oil prices energy and food, supply bottlenecks and post-pandemic demand recovery have led to widespread price pressures and accelerating inflation.”further justifies the ECB.
Asset buybacks continue
As for asset purchases, the ECB confirms that it will continue on its current path. “The Board of Governors intends to continue reinvesting, in full, the principal repayments of maturing securities acquired under the asset purchase program (asset purchase programmeAPP) for an extended period after the date on which it started to raise the key ECB interest rates”can we still read. “With regard to the emergency purchase program in the face of the pandemic (pandemic emergency purchase programme, PEPP)the Board of Governors intends to reinvest the principal payments from maturing securities acquired under the program until at least the end of 2024.”
This ad should not first not surprise the markets, it was so expected. As Éric Dor (director of economic studies at the IESEG School of Management, Lille and Paris) reminded us before the meeting,“At the ECB Governing Council, strong response advocates argue for a 0.75% hike and are likely to win.” It is now done.