MNI BRIEF: ECB Hikes Rates, But Signals Possible Peak

The European Central Bank raised its key interest rates by 25bp on Thursday, sending the benchmark deposit rate to a new euro-era record high 4.0%. The refinancing rate and the marginal lending rate rose to 4.5% and 4.75% respectively.

But its policy statement said that key interest rates "have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target., adding that future decisions will ensure rates will be set at sufficiently restrictive levels "for as long as necessary".

The decison was not totally unexpected, with market analysts split going into the meeting as to whether policymakers would hike a further 25bp or keep the deposit rate unchanged at 3.75%. (MNI ECB WATCH: Tricky Data Makes Rates Decision A Close Call)

The central bank revised its inflation outlook, pushing its 2024 projection higher, although trimming the medium-term 2025 projection. September staff macroeconomic projections see average inflation at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025. Underlying price pressures remain high, though most indicators have started to ease. ECB staff slightly revised down the projected path for inflation excluding energy and food, to an average 5.1% in 2023, 2.9% in 2024 and 2.2% in 2025. (MNI SOURCES: Hawks Aim For ECB Hike Before Data Ties Hands)