ECB Hikes Key Interest Rates by 25 basis points

May 4, 2023

Effective May 4, 2023, the Governing Council took the decision to raise the three key interest rates set by the European Central Bank (ECB) by 25 basis points. As a result, starting on May 10, 2023, the interest rates on the main refinancing operations, the marginal lending facility, and the deposit facility will all be raised to 3.75%, 4.00%, and 3.25%, respectively.

The ECB noted that, “Headline inflation has declined over recent months, but underlying price pressures remain strong. At the same time, the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain”. Considering the ongoing high inflation pressures, the Governing Council expects to raise interest rates further as the inflation outlook continues to be too high for too long. Keeping interest rates at restrictive levels will over time reduce inflation and ensure it reaches its medium-term target of 2% in a timely manner.

To preserve price stability and financial stability in the euro area, The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary. The ECB highlighted, “In particular, the Governing Council’s policy rate decisions will continue to be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.”

The European Central Bank concluded with the following:

“The ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed. Moreover, the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.”



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