Today, as expected, the ECB raised all three key interest rates by 75 basis points each. These hikes take the deposit rate to 1.5%, the refinancing operations rate to 2.0% and the marginal lending facility to 2.25%. The central bank amended its language around forward guidance in the official statement, signalling that further tightening is to be expected but on a meeting-by-meeting approach. During the press conference, President Lagarde emphasised the time lag between monetary policy decisions and any subsequent effects on economic data.
The ECB did not announce any decisions around the prospect for quantitative tightening, with the existing asset and pandemic emergency purchase programmes remaining unchanged. It is notable, however, that the Governing Council unveiled changes to the interest rates applied to its targeted longer-term refinancing operations (TLTRO III) and that minimum reserves held by credit institutions will receive the deposit rate, not the refinancing rate. Lagarde noted that the aim of these measures is to free up collateral and reduce liquidity.
The US Federal Reserve (Fed) will also announce its monetary policy stance next week, on 2nd With inflation remaining significantly above the central bank’s two percent target and a robust labour market, consensus among market participants is for the Fed to remain on its aggressive tightening trajectory with a fourth-in-a-row 75 basis point increase in the federal funds rates.