Today the European Central Bank (ECB) again raised its three key policy rates by 25 bps—the second occasion it has hiked by such an increment in a row. The interest rate on the main refinancing operations, and the marginal lending facility, and the deposit facility will be increased to 4.00%, 4.25% and 3.50% respectively, with effect from June 21, 2023.
Today’s statement opened with a firm acknowledgment that “inflation is projected to remain too high for too long.” ECB President Christine Lagarde stated that inflation risks remain elevated due to recent wage agreements in some euro-area countries, as higher wages and hours worked without significant increases in output points to euro-area productivity challenges. At 6.1%, euro zone inflation remains far too high, stemming from such increased wage demands and tight labor market conditions, and is still projected to stay above target beyond 2025. At the press conference, President Lagarde stated that “we are not at the destination” and “we have more ground to cover.” With inflation projected to be still above the ECB’s 2% target at the end of their forecast period, a further rate hike will likely still be required at, and perhaps beyond, the next policy meeting on July 27.