Breaking: ECB hikes key rates by 50 basis points in December as expected


The European Central Bank (ECB) announced on Thursday that it raised its key rates by 50 basis points (bps) following the December policy meeting as expected. 

With this decision, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2.5%, 2.75% and 2% respectively.

Follow our live coverage of the market reaction to the ECB's policy announcements.

Market reaction

The EUR/USD pair edged higher with the initial reaction and was last seen trading at 1.0640, where it was still down 0.4% on a daily basis.

Key takeaways from policy statement

"ECB today decided to raise three interest rates by 50 basis points and, based on substantial upward revision to inflation outlook, expects to raise them further."

"In particular, ECB judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to 2% medium-term target."

"Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against risk of a persistent upward shift in inflation expectations."

"ECB's future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach."

"Interest rates are ECB’s primary tool for setting monetary policy stance."

"From beginning of March 2023 onwards, APP portfolio will decline at a measured and predictable pace, as Eurosystem will not reinvest all of principal payments from maturing securities."

"Decline will amount to €15 billion per month on average until end of second quarter of 2023 and its subsequent pace will be determined over time."

"At its February meeting, ECB will announce detailed parameters for reducing APP holdings."

"ECB will regularly reassess pace of APP portfolio reduction to ensure it remains consistent with overall monetary policy strategy and stance, to preserve market functioning, and to maintain firm control over short-term money market conditions."

"By end of 2023, ECB will also review its operational framework for steering short-term interest rates, which will provide information regarding the endpoint of the balance sheet normalisation process."

"ECB decided to raise interest rates today, and expects to raise them significantly further, because inflation remains far too high and is projected to stay above target for too long."

"According to Eurostat’s flash estimate, inflation was 10.0% in November, slightly lower than 10.6% recorded in October."

"Decline resulted mainly from lower energy price inflation."

"Food price inflation and underlying price pressures across the economy have strengthened and will persist for some time."

"Amid exceptional uncertainty, Eurosystem staff have significantly revised up their inflation projections."

"They now see average inflation reaching 8.4% in 2022 before decreasing to 6.3% in 2023, with inflation expected to decline markedly over course of year."

"Inflation is then projected to average 3.4% in 2024 and 2.3% in 2025."

"Inflation excluding energy and food is projected to be 3.9% on average in 2022 and to rise to 4.2% in 2023, before falling to 2.8% in 2024 and 2.4% in 2025."

"Euro area economy may contract in current quarter and next quarter, owing to energy crisis, high uncertainty, weakening global economic activity and tighter financing conditions."

"According to latest Eurosystem staff projections, a recession would be relatively short-lived and shallow."

"Growth is nonetheless expected to be subdued next year and has been revised down significantly compared with previous projections."

"Beyond near term, growth is projected to recover as current headwinds fade."

"Eurosystem staff projections now see economy growing by 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025."

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended content

Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended content

Editors’ Picks

EUR/USD closes in on 1.0800 on broad USD weakness

EUR/USD closes in on 1.0800 on broad USD weakness

EUR/USD preserves its bullish momentum and continues to push higher toward 1.0800 on Tuesday. The positive shift witnessed in risk sentiment, as reflected by the positive opening in Wall Street, doesn't allow the US Dollar to find demand and helps the pair keep its footing. 


GBP/USD stays in red around mid-1.2100s

GBP/USD stays in red around mid-1.2100s

GBP/USD continues to trade in negative territory at around 1.2250 on Tuesday despite the broad-based US Dollar weakness. Investors seem to be refraining from betting on Pound Sterling strength ahead of the Fed's and BOE's policy announcements.


Gold falls toward $1,950 as US yields push higher

Gold falls toward $1,950 as US yields push higher

Gold price extended its daily slide and declined below $1,960. The benchmark 10-year US Treasury bond yield is up nearly 3% on the day above 3.5% on improving risk mood, forcing XAU/USD to stay under bearish pressure ahead of Fed's policy decisions on Wednesday.

Gold News

If Fed’s money printer goes brrr… will Bitcoin price hit $1 million?

If Fed’s money printer goes brrr… will Bitcoin price hit $1 million?

Bitcoin has taken front and center stage after it restarted its 2023 rally in March. This resurgence of buying pressure pushed BTC to nine-month highs.

Read more

FX thoughts for the week

FX thoughts for the week

Do central banks face a conflict between their inflation mandate and financial stability? The markets are still grappling with this question and confidence in the financial sector has not fully recovered. For now, central banks are responding with a conditional no.

Read more