European Central Bank Interest Rates

The European Central Bank also joined the global rate hike on yesterdays announcement, announcing a larger then expected 50 bps deposit rate increase, to 0.00%. The ECB said a further normalization of interest rates could be expected at upcoming meetings.

ECB also approved the Transmission Protection Instrument, a tool aimed at supporting orderly conditions across Eurozone, in particular the region’s peripheral markets such as Italy and Spain. Full details are not released yet, and the scale of TPI purchases depends on the severity of the risks facing policy transmission.

It is believed that inflation remains elevated enough, and the inflation risks worrisome enough to continue with a more forceful pace rate hikes for now. Expectation is that yesterdays rate hike will be followed by another 50bps Deposit Rate increase at the September meeting. Inflation remains elevated and until the Eurozone economic growth slows in a much more meaningful manner. It is also expected that a 25bps rate increase at the October and December meetings, which could bring the Deposit rate to 1.00% by the end of this year.

The ECB delivered a larger than expected 50 bps Deposit Rate increase, thereby exiting its negative interest rate policy and taking the deposit rate to 0.00% and key policy rates were also lifted by 50 bps, taking the refinancing rate to 0.50% and the marginal lending rate to 0.75%.