The ECB complies with the script and raises rates by a quarter of a point, to 4.25%

MADRID, 27 Jul.

The ECB complies with the script and raises rates by a quarter of a point, to 4.25%


The Governing Council of the European Central Bank (ECB) has decided to raise interest rates by 25 basis points, as taken for granted by market consensus, so that the reference rate for its refinancing operations will be at 4.25%, while the deposit rate will reach 3.75% and the loan facility will reach 4.50%.

"Inflation continues to decline, but it is still expected to remain too high for too long," the Governing Council said in a statement, expressing its determination to ensure that inflation returns to its 2% target soon. in the medium term.

"Consequently, it has decided today to raise the three official ECB interest rates by 25 basis points," he announced.

With this ninth consecutive rise in the price of money, which has reached its highest level in 16 years, the ECB has completed a full year since the current tightening cycle of its monetary policy began.

With the quarter-point rise announced this Thursday by the ECB, in line with the one adopted in June, the 'Guardian of the euro' has raised the price of money by 425 basis points since it began raising rates in July of the year past.

The institution has defended that the increase in interest rates agreed on Thursday reflects the Governing Council's assessment of the inflation outlook, the dynamics of underlying inflation and the intensity of the transmission of monetary policy.

In this sense, he pointed out that the evolution since the last meeting supports the expectation that inflation "will continue to fall during the rest of the year", but it will remain above the target for a prolonged period.

"Although some indicators show signs of moderation, core inflation remains at generally high levels," the entity stated.

The year-on-year inflation rate in the euro area fell six tenths in June compared to the previous month, thus reaching 5.5%, compared to 6.1% in May, which represents the lowest increase in prices since January 2022, although the core inflation figure accelerated two tenths, up to 5.5%.

Likewise, the Governing Council of the ECB has indicated that the previous increases in interest rates "continue to be transmitted strongly" and financing conditions have tightened again and are increasingly slowing down demand, which is an important factor for bring inflation back to target.

In this regard, the latest survey of bank loans prepared by the ECB confirmed the collapse to historical lows in the demand for loans and lines of credit by companies as a result of the rise in interest rates and the fall in investment in addition to anticipating a new drop in the data in the third quarter, although less intense.

Thus, the ECB Council has ensured that its future decisions will ensure that key ECB interest rates are set at sufficiently restrictive levels for the time necessary to bring inflation back to the 2% medium target soon. term.

"The Governing Council will continue to apply a data-driven approach to determine the appropriate level of tightening and duration," he reiterated, stressing that its interest rate decisions will continue to be based on its assessment of the inflation outlook taking into account the new economic and financial data, the dynamics of underlying inflation and the intensity of the transmission of monetary policy.

Likewise, the Governing Council has also decided to set the remuneration of minimum reserves at 0%. This decision will preserve the effectiveness of monetary policy by maintaining the current degree of control over the stance of monetary policy and ensuring the full transmission of interest rate decisions to money markets.

At the same time, the ECB believes that it will improve the efficiency of monetary policy by reducing the total amount of interest that needs to be paid on reserves in order to apply the appropriate guidance.