ECB Raises Key Interest Rate by 0.25%P... Two More Hikes Expected by July (Comprehensive)

ECB Raises Key Interest Rate to 3.75%
Core Consumer Prices Decline in April
Inflation Trend Reverses Starting June
Two 0.25%P Hikes Expected by July

On the 4th (local time), the European Central Bank (ECB) took a baby step by raising the key interest rate by 0.25 percentage points, signaling a pause in rate hikes. As the core consumer price inflation rate in April eased, indicating a slowdown in inflationary pressures, the ECB appears to have begun adjusting the pace of tightening. However, the market still expects two more rate hikes, judging that inflation has not been sufficiently controlled.

On the same day, the ECB held a monetary policy meeting in Frankfurt, Germany, and announced that it would raise the key interest rate from the previous 3.5% to 3.75%. Since last July, the ECB ended the era of negative interest rates after 11 years and raised the key interest rate, which had remained at 0%, to 3.5% through six hikes. It took two giant steps (0.75 percentage point rate hikes) in September and October, followed by three more hikes of 0.5 percentage points each from December through last month.

The ECB appears to have started adjusting the pace of rate hikes as the core inflation rate, excluding food and energy, slightly fell from a record high of 5.7% in March to 5.6% in April.

However, market analysis suggests it is premature to conclude that the ECB has entered the end of the tightening cycle. Inflationary pressures are not yet fully under control. The ECB’s CPI peaked at 10.6% in October last year and recorded 7% in April this year, showing slight fluctuations but an overall downward trend. Nevertheless, it still exceeds three times the ECB’s inflation target of 2%. Moreover, the core CPI only slightly declined by 0.1 percentage points compared to the record high of 5.7% in March.

In its statement on the day, the ECB also said, "Future rate decisions will be sufficiently restrictive to bring inflation back to the ECB’s target of around 2%," adding, "This level will be maintained for as long as necessary."

However, some expect that the ECB will raise the key interest rate by two more increments of 0.25 percentage points each before concluding the tightening cycle. Bloomberg reported, "After inflation peaked in October and core consumer price inflation began to decline this month for the first time in 10 months, ECB policymakers are considering ending the tightening policy," adding, "The market expects two more rate hikes of 0.25 percentage points each to remain."

This content was produced with the assistance of AI translation services.