MNI BRIEF: ECB Hikes As Inflation Projected Above Target

The European Central Bank raise interest rates and confirmed the end of bond reinvestments in its asset purchase programme, but surprised financial markets by revising higher the average rates of inflation over the projection horizon.

The ECB hiked all three policy rates by 25bp, leaving the benchmark deposit rate at 3.5% -- in line with the latest MNI reporting. (See MNI SOURCES: ECB Seen Likely Hiking Twice More)

However, with the Governing Council stating that inflation is coming down but still seen as too high for too long, staff economists raised the 2025 headline inflation outlook to 2.2% and core to 2.3%. Nearer-term projections were also revised a little higher, despite the downturn in actual inflation readings in recent months.

The ECB's statement said past tightening is being transmitted forcefully and having an impact across the economy, adding that future decisions will ensure that interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to target.