MNI ECB WATCH: ECB Hikes, Makes No September Pre-Commitments

The European Central Bank raised key interest rates by 25 basis points on Thursday, pushing the benchmark deposit rate to 3.75%, the highest since spring 2001, but providing no clear guidance to future policy moves.

While the Governing Council "will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the 2% medium-term target,” its post-meeting statement omitted a previous reference to raising rates, and the ECB said it would follow a data-dependent approach in upcoming meetings.(MNI ECB WATCH: Data Key To Next Move After July's Likely Hike)

The "burden of proof will be on the data" for decisions from the next meeting in September onwards, President Christine Lagarde told a press conference.

“There is a possibility of a hike, there is a possibility of a pause -- it’s a decisive maybe,” she said.

The refi rate and the minimum lending facility rates rose to 4.25% and 4.5% respectively, in a decision widely expected by financial markets.

DATA DECIDES

So far the ECB has seen little in the way of second-round inflation effects, but Lagarde warned that upside risks to prices remain, mainly linked to any escalation of the war in Ukraine. (See MNI SOURCES: Data Deluge Clouds Early ECB September Rate Call)

The July decision was "unanimously agreed", Lagarde added, driven by one key determination: "bringing inflation to target".

Labour market data, consumer confidence and bank lending figures will all be closely watched, with policymakers set to "go deeper into underlying numbers...to see what is moving," she said.

"We are making progress. inflation is declining but is that enough? not quite," Lagarde said.

RESERVE REMUNERATION TWEAK

The ECB also announced it would set the remuneration of minimum reserves at 0%, with the change effective from the start of the Sept 20 maintenance period.

"Today’s decision to reduce the remuneration on minimum reserves will preserve the effectiveness of monetary policy by maintaining the current degree of control over the monetary policy stance and ensuring the full pass-through of the Governing Council’s interest rate decisions to money markets. At the same time, it will improve the efficiency of monetary policy by reducing the overall amount of interest that needs to be paid on reserves in order to implement the appropriate stance," the ECB said in a statement.

The decision will not prejudge the outcome of the ongoing review of the ECB’s operational framework, the statement added.