The European Central Bank ( ECB), as we know, has always been working towards defining and implementing monetary policy for maintaining price stability. The decisions taken on the interest rates are the most common one, which influences the financial situations of the Euro area economy. The ECB lowers and raises interest rates accordingly. For achieving the aim of inflation boost, the interest rates get lowered and for preventing the excessive inflation, interest rates get raised by them.
Such an interest raising decision by the ECB has been witnessed on 15th June, 2023. The ECB issued a press release on its official website, stating its decision to raise the three key ECB interest rates by 25 basis points. According to the press release, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.00%, 4.25% and 3.50% respectively, with effect from 21 June 2023.
It further stated in the press release that the Governing Council stands ready to ensure the return of inflation to 2% target over the medium term along with the perseverance of a smooth policy of monetary transmission. The Transmission Protection Instrument will counter unwarranted, disorderly market dynamics, allowing the Governing Council to more effectively deliver on its mandate on price stability.
But, just like every action has a consequence, this particular decision on part of the ECB led them to witness the downfall of European stocks on Thursday, after it raised its interest rate to its highest level. ECB President, Christine Lagarde spoke to the reporters after the policy meeting. According to her statement, “The key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary.” She further added about inflation coming down but being projected too high for too long.
Lagarde in her statement, also said “Barring a material change to our baseline, it is very likely the case that we will continue to increase rates in July. We are not thinking about pausing, as you can tell.”
