ECB Raises Deposit Rate to 2.5% on Inflation Risks — SkimNews
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- European Central Bank raised its key deposit rate by 25 basis points to 2.5% from 2.25%, with LSEG data showing markets had priced a 100% chance of the move.
- Governing Council described the outlook as highly uncertain, citing upside risks to inflation, downside risks to growth and a broad range of outcomes around the energy shock.
- Christine Lagarde said the Middle East conflict and Russia’s war in Ukraine will keep headline inflation well above the ECB’s 2% target for an extended period, while energy prices and trade tensions remain a growth risk.
- Euro zone inflation reached 3.3% in August, while energy inflation surged to 14.3% as the region remained a net energy importer.
- Strait of Hormuz disruption concerns sent oil prices higher and kept them volatile, contributing to inflation above the ECB’s target.
- European bond yields reached multi-decade highs as investors repriced inflation and interest-rate expectations.
- Deutsche Bank found no client consensus on the ECB’s next move: more than one-third expected a 2.75% peak, one-quarter expected rates to hold at 2.5% and another quarter expected a 3% terminal rate.
Why it matters: For European borrowers and governments, the ECB’s 25-basis-point increase to a 2.5% deposit rate tightens the policy setting while euro-zone inflation reached 3.3% in August and energy inflation surged to 14.3%. European bond yields have risen to multi-decade highs, reflecting the same inflation and rate-hike repricing behind the ECB action.
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