ECB delivers dovish final rate hike

By Craig Erlam  

The ECB raised interest rates again on Thursday, probably for the last time in the tightening cycle although it did leave itself some flexibility on that front.

The 25-basis-point increase pushes the rate the European Central Bank pays on bank deposits to 4.0%, the highest level since the euro was launched in 1999.

This falls into the dovish hike category, with the ECB acknowledging inflation remains too high, but also that growth is suffering.

What’s more, it clearly indicated that it believes the current stance should be tight enough to return inflation to target, given time.

Not unanimous

It would appear the decision wasn’t unanimous though, with only a solid majority backing the decision.

Again, we shouldn’t be surprised at this stage of the cycle that, considering the uncertain outlook, not everyone is in agreement on their assessment of the situation.

The euro slipped after the decision and following comments from President Christine Lagarde, as did euro area yields.

Further progress on inflation over the coming months, as the ECB anticipates, should enable pauses over the coming meetings, at which point the focus will gradually shift to the timing of the first rate cut.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

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