ECB Hikes Benchmark Interest Rates, Pledges Another 50 bps More in March

The European Central Bank (ECB) raised its benchmark interest rate by 50 basis points as widely expected on Thursday, taking it to 2.5%.

In a statement, it pledged to “stay the course in raising interest rates significantly at a steady pace” and, in unusually firm language, said it intended to hike by another 50 basis points in March.

The move follows four rate hikes in 2022, which brought Euro Zone rates out of negative territory for the first time since 2014.

At 13:15 GMT, the EUR/USD is trading 1.0973, down 0.0017 or -0.15%. This is lower than the intraday high of 1.1033.

ECB President Lagarde Speaks

In her press conference, ECB President Christine Lagarde said, “There was a general agreement on the fact that the 50 basis points this time around and the 50 basis points in March were legitimate on the basis of, particularly in March, of the underlying inflation pressure that we know will continue. I think where there was discussion, and not full agreement, was on the way in which we communicate it.”

She went on to say, “On the overall monetary policy statement that reflects our discussions and our decision, there was a very, very large consensus.”

Lagarde also said, “We know that we have ground to cover. We know that we are not done. What we are saying is that as we receive projections, we will need to assess what rates, what level, what pace will be needed in order to raise (interest rates) significantly into too restrictive levels and to stay there for sufficiently long so that we are confident that at those rates we will actually deliver the 2% objective medium term that we have set for ourselves.”

Lagarde also made several remarks on inflation.

“This is the highest in all the time that core inflation has been in our part of the world. So I get it, headline inflation has gone down … but underlying inflation pressure is there, alive and kicking, which is why we are committing as we intend in this monetary policy statement, and this is why I say we have more ground to cover and we are not done.

She also added that “The risks to the inflation outlook have become more balanced,” but “Other indicators of underlying inflation are also still high.”