European Central Bank kicks rates 50 points higher and signals more such hikes to come

Christine Lagarde Press Conference Following ECB Governing Council Meeting
The monetary authority of the 19 countries using the euro kicked rates higher to tame inflation, which last year hit the highest level since the creation of the common currency back in 1999 (Photo by Andreas Rentz/Getty Images)

The European Central Bank (ECB) today hiked interest rates 50 basis points and signalled further such increases are coming this year.

The monetary authority of the 19 countries using the euro kicked rates higher to tame inflation, which last year hit the highest level since the creation of the common currency back in 1999.

Borrowing costs across the bloc are now 2.5 per cent, marking a huge change from years of negative interest rates after the financial crisis.

ECB president Christine Lagarde said the rate of price increases in the area is still “far too high” despite it dropping a few months in a row to 8.5 per cent.

She also committed to “stay the course” on attacking inflation with hefty rate increases.

In a hawkish press conference after the announcement, Lagarde “was at pains to stress that the ECB did not think it would be done with raising rates following the March meeting,” Sandra Horsfield, an economist at fund manager Investec, said.

“Lagarde made clear that rates will remain higher for longer, pushing back against markets pricing rate cuts already this year,” analysts at investment bank Nomura said.

Central banks have jacked up rates rapidly

The ECB raised rates again today.
Source: ECB, BoE and Fed

The ECB is expected to launch a much more aggressive financial tightening campaign in 2023 compared to catch up with the Bank of England and US Federal Reserve, both of which did the bulk of their hiking cycles last year.

Today, the Bank pumped borrowing costs 50 basis points higher to four per cent, which markets expect will be the final big rate increase from the UK’s monetary authority.

Fed chair Jerome Powell and the rest of the federal open market committee last night kicked rates 25 basis points higher to a range of 4.5 and 4.75 per cent.

Despite other central banks nearing peak rates, the ECB is likely to rush out a series of jumbo increases in 2023, possibly taking them to a peak of 3.5 per cent.

Today’s 50 point increase did little to support the euro, which weakened around 0.6 per cent against the US dollar. The common currency was also down more than 0.25 per cent against the pound.

Stocks fared much better. The pan-European Stoxx 600 index closed up 1.3 per cent.