After surrendering its negative interest rate earlier this summer, the ECB is following the Fed’s lead on interest rates, as the central bank has declared a 75bps interest rate hike, with many more to follow.
The Governing Council today decided to raise the three key ECB interest rates by 75 basis points. This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target. Based on its current assessment, over the next several meetings the Governing Council expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations. The Governing Council will regularly re-evaluate its policy path in light of incoming information and the evolving inflation outlook. The Governing Council’s future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.
Unfortunately, the world seems somewhat less than impressed, as despite an early rise against the dollar, the rally quickly faded and the euro has lost even more ground against the dollar.
Europe’s bourses initially declined on the news, but are currently staging a late day (Europe time) rally.
That the markets apparently had already priced in the rate hike means the ECB remains flat-footed and two steps behind the curve on inflation.