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

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 50 basis points (bps) following the February 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 3%, 3.25% and 2.5%, respectively.

In its policy statement, the ECB noted that in view of underlying inflation pressures, it intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March and evaluate subsequent path of the monetary policy.

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

Market reaction

As markets assess the ECB's policy decisions, EUR/USD clings to small daily gains at around 1.1000.

Key takeaways from policy statement via Reuters

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

"Also decided on modalities for reducing Eurosystem’s holdings of securities under APP."

"As communicated in December, APP portfolio will decline by €15 billion per month on average from beginning of March until end of June 2023, and subsequent pace of portfolio reduction will be determined over time."

"Partial reinvestments will be conducted broadly in line with current practice."

"In particular, remaining reinvestment amounts will be allocated proportionally to share of redemptions across each."

"Eurosystem’s corporate bond purchases, remaining reinvestments will be tilted more strongly towards issuers with a better climate performance."

"Without prejudice to ECB’s price stability objective, this approach will support gradual decarbonisation of Eurosystem’s corporate bond holdings, in line with goals of Paris Agreement."

"Detailed modalities for reducing APP holdings are described in a separate press release to be published at 15:45 CET."

"ECB will continue applying flexibility in reinvesting redemptions coming due in PEPP portfolio, with a view to countering risks to monetary policy transmission mechanism related to pandemic."

"Refinancing operations as banks are repaying amounts borrowed under TLTRO, ECB will regularly assess how targeted lending operations are contributing to its monetary policy stance."

"ECB stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over medium term."

"Transmission protection instrument is available to counter unwarranted, disorderly market dynamics that pose a serious."

"Threat to transmission of monetary policy across all euro area countries, thus allowing ECB to more effectively deliver on its price stability mandate."

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