ECB Raises Rates By 25 Bps To Fight Inflation

Key Insights

• ECB raised the interest rate from 3.75% to 4%. 
• The central bank expects that higher rates will put more pressure on the economic growth. 
• Rising yields put material pressure on precious metals markets. 

On June 15, ECB released its Interest Rate Decision. The central bank raised the rate from 3.75% to 4%, in line with the analyst consensus. The Deposit Facility Rate was raised from 3.25% to 3.5%.

The ECB has also presented updated macroeconomic projections. The central bank expects that inflation would average 5.4% in 2023, 3.0% in 2024 and 2.2% in 2025. The medium-term target for inflation stays at the 2% level.

The economic growth projections were lowered, which is not surprising as the ECB continues to push rates higher. The European economy is expected to grow by 0.9% in 2023, 1.5% in 2024, and 1.6% in 2025.

The yields of the European government bonds moved higher after the release of the ECB decision. The yield of Germany’s 10-year bonds moved above the 2.50% level, while the yield of Italy’s 10-year bonds settled above 4.20%.

Rising yields in the U.S. and Europe put material pressure on precious metals markets. Gold declined below the $1930 level, while silver pulled back towards $23.25.

EUR/USD moved higher and tested the 1.0850 level as the ECB was somewhat hawkish. Interestingly, EUR/USD gains ground despite yesterday’s Fed projections, which showed that federal funds rate could grow to 550 – 575 bps this year.

The weak economic projections from ECB did not have an impact on the oil markets, which are trying to stabilize after the recent volatility. WTI oil settled near the $69 level, while Brent oil is trying to climb back above $74.

For a look at all of today’s economic events, check out our economic calendar.