FRANKFURT — The European Central Bank raised interest rates by 0.25 percentage points to 3.25 percent Thursday, slowing the pace after three straight 50 basis point hikes in its most aggressive tightening cycle on record.
“The inflation outlook continues to be too high for too long. In light of the ongoing high inflation pressures, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points,” the ECB said in a statement.
“Incoming information broadly supports the assessment of the medium-term inflation outlook that the Governing Council formed at its previous meeting. Headline inflation has declined over recent months, but underlying price pressures remain strong,” it said. “At the same time, the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain.”
In a possible compromise with hawks on the Governing Council, the ECB flanked the smaller hike with a decision to end reinvestments under its asset purchase program (APP) bond portfolio as of July. Until then it will continue to shrink holdings by about €15 billion a month.
The ECB left the door for additional tightening wide open, noting that “future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2 percent medium-term target and will be kept at those levels for as long as necessary.”
This sets the ECB apart from the U.S. Federal Reserve which hinted Wednesday that it may refrain from further hikes, with markets now largely betting U.S. interest rates have peaked. This would mark the end of an era of unprecedented synchronized monetary tightening across the globe.
