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== Monetary Policy Developments == | == Monetary Policy Developments == | ||
=== March === | === March 2023 === | ||
ECB raises interest rates by 50 basis points(as indicated six weeks ago) while pointing out that "inflation is projected to remain too high for too long." Investors were anticipating a smaller rate increase in light of last week's turmoil in U.S banking sector. ECB noted that the banking sector in Europe is strong , with sufficient capital and liquidity positions but stressed that it will be there to support it in any case. "In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy." ECB said in a statement. <ref>https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp230316~aad5249f30.en.html | ECB raises interest rates by 50 basis points(as indicated six weeks ago) while pointing out that "inflation is projected to remain too high for too long." Investors were anticipating a smaller rate increase in light of last week's turmoil in U.S banking sector. ECB noted that the banking sector in Europe is strong , with sufficient capital and liquidity positions but stressed that it will be there to support it in any case. "In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy." ECB said in a statement. <ref>https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp230316~aad5249f30.en.html | ||
https://www.wsj.com/articles/ecb-raises-rates-by-half-point-despite-mounting-banking-stress-41c8bae</ref> | https://www.wsj.com/articles/ecb-raises-rates-by-half-point-despite-mounting-banking-stress-41c8bae</ref> | ||
=== May 4 === | === May 4 2023 === | ||
The Governing Council decided to raise the three key ECB interest rates by 25 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.75%, 4.00% and 3.25% respectively, with effect from 10 May 2023.<ref>https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp230504~cdfd11a697.en.html#:~:text=Key%20ECB%20interest%20rates,-The%20Governing%20Council&text=Accordingly%2C%20the%20interest%20rate%20on,effect%20from%2010%20May%202023.</ref> | The Governing Council decided to raise the three key ECB interest rates by 25 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.75%, 4.00% and 3.25% respectively, with effect from 10 May 2023.<ref>https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp230504~cdfd11a697.en.html#:~:text=Key%20ECB%20interest%20rates,-The%20Governing%20Council&text=Accordingly%2C%20the%20interest%20rate%20on,effect%20from%2010%20May%202023.</ref> | ||
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* They also revised their projections for core inflation upward. They are now forecasting it to average 5.1% in 2023, 3.0% in 2024 and 2.3% in 2025. Initially, they projected it to average 4.6% in 2023, 2.5% in 2024 and 2.2% in 2025. | * They also revised their projections for core inflation upward. They are now forecasting it to average 5.1% in 2023, 3.0% in 2024 and 2.3% in 2025. Initially, they projected it to average 4.6% in 2023, 2.5% in 2024 and 2.2% in 2025. | ||
* They revised down GDP projections to 0.9% in 2023 and 1.5% in 2024. Initially they forecasted it to be 1% in 2023 and 1.6% in 2024. | * They revised down GDP projections to 0.9% in 2023 and 1.5% in 2024. Initially they forecasted it to be 1% in 2023 and 1.6% in 2024. | ||
=== July 27 2023 === | |||
* ECB raises interest rate by 25 basis points taking its main rate to 3.75%.<blockquote>“Inflation continues to decline but is still expected to remain too high for too long,” the ECB said in a statement.</blockquote> | |||
* The ECB kept options foe September meeting open.<blockquote>The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the 2% medium-term target. The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction," the statement added.</blockquote> | |||
* The rate hike was widely expected by the market. | |||
== References == | == References == | ||