The ECB has been undoing years of aggressive stimulus in a matter of months after being blindsided by a sudden surge in prices – the result of higher energy costs caused by Russia’s invasion of Ukraine and the economy’s uneven reopening after the COVID-19 pandemic.
The central bank of the 19 countries that share the euro raised the interest rate it pays on bank deposits by 75 basis points, taking it to the highest level since 2009 at 1.5%.
“The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to…2%,” the ECB said.
But the ECB repeated plans to keep reinvesting proceeds from the 3.3-billion-euro pile of bonds it bought under its Asset Purchase Programme (APP) in the last eight years, when it thought inflation was going to stay low.
“The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time,” the ECB said.
Finally, the ECB changed the terms of its Longer-Term Refinancing Operations to encourage banks to repay those multi-year loans early.
With Thursday’s decision, the ECB also increased the rate on its Main Refinancing Operation, a weekly cash auction that banks have barely tapped for years, to 2.0% from 1.25% and that on its daily Marginal Lending Facility to 2.25% from 1.5%.
ECB President Christine Lagarde will explain the policy decisions in a news conference at 1245 GMT.
Source: Economy - investing.com
