ECB, Uncertain End to Tightening... Rate Hike Expected Until September

ECB Raises Key Interest Rate to 4.0%
Signals Additional Hike in July
September Rate Hike Discussion Expected
European Stock Markets Close Lower

The European Central Bank (ECB) reaffirmed its commitment to continue raising interest rates until inflation is sufficiently controlled. This dashed market expectations that rates would be frozen after this month's hike. Some speculate that the ECB may be considering further rate hikes until September this year and has begun internal reviews.

Christine Lagarde, President of the ECB.
Photo by Yonhap News

On the 15th (local time), the ECB held a monetary policy meeting and announced an increase in the benchmark interest rate from the previous 3.75% to 4.0%. Since last July, the ECB ended negative interest rates for the first time in 11 years and has continued high-intensity tightening by raising rates eight consecutive times. In contrast, the U.S. Federal Reserve decided to hold rates steady after ten hikes the previous day.

The reason for the ECB's rate hike decision is that inflation is still not under control. The ECB's Consumer Price Index (CPI) peaked at 10.6% last October and slowed sharply to 6.1% this month, marking the largest decline in 1 year and 3 months. However, it still exceeds the ECB's inflation target of 2% by three times. Core inflation, excluding food and energy, rose 5.3%, below market expectations of 5.5%, but still more than twice the target inflation rate.

In its statement, the ECB explained, "Inflation is slowing but is expected to remain elevated for too long," and "We decided to raise rates to ensure inflation returns to the 2% medium-term target in a timely manner."

For the same reason, the ECB indicated it plans to raise rates once more next month. This overturned market expectations that the eurozone's tightening cycle would end next month based on the inflation slowdown trend. On the day, President Christine Lagarde emphasized, "Economic growth and inflation outlooks remain uncertain," and "If there is no material change in the outlook, we will raise rates again next month."

Some have also raised the possibility that the ECB may continue tightening in September. An ECB insider told Bloomberg, "The market is betting on a rate hike at the September monetary policy meeting," and "Within the ECB, a fierce debate is expected at next month's meeting regarding this."

President Lagarde's hawkish remarks shocked the market. European stock markets mostly declined that day. Germany's Frankfurt stock exchange DAX index fell 20.67 points (0.13%) to 16,290.12, and France's Paris stock exchange CAC40 index dropped 37.62 points (0.51%) to close at 7,290.91. However, the UK's London stock exchange FTSE100 index rose 25.52 points (0.34%) to close at 7,628.26.

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