Breaking: ECB hikes key rates by 50 basis points in July

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 50 basis points (bps) following the July policy meeting. Markets were expecting the bank to hike its rates by 25 bps. 

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 0.50%, 0.75% and 0.00% respectively, with effect from 27 July 2022.

The bank also announced that the Governing Council approved the new anti-fragmentation tool titled "Transmission Protection Instrument (TPI)."

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

Key takeaways from policy statement via Reuters

"In line with ECB's strong commitment to its price stability mandate, ecb took further key steps to make sure inflation returns to its 2% target over medium term."

"ECB judged that it is appropriate to take a larger first step on its policy rate normalisation path than signalled at its previous meeting."

"This decision is based on ECB's updated assessment of inflation risks and reinforced support provided by TPI for effective transmission of monetary policy."

"At ECB's upcoming meetings, further normalisation of interest rates will be appropriate."

"Frontloading today of exit from negative interest rates allows ECB to make a transition to a meeting-by-meeting approach to interest rate decisions."

"Future policy rate path will continue to be data-dependent and will help to deliver on its 2% inflation target over medium term."

"ECB assessed that establishment of TPI is necessary to support effective transmission of monetary policy."

"TPI will be an addition to ECB's toolkit and can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area."

"Scale of TPI purchases depends on severity of risks facing policy transmission."

"Purchases are not restricted ex-ante."

"By safeguarding transmission mechanism, TPI will allow ecECB to more effectively deliver on its price stability mandate."

"In any event, flexibility in reinvestments of redemptions coming due in Pandemic Emergency Purchase Programme (PEPP) portfolio remains first line of defence to counter risks to transmission mechanism related to pandemic."

"Details of TPI are described in a separate press release to be published at 15:45 CET."

Market reaction

With the initial market reaction, the EUR/USD pair gained traction and was last seen rising 0.7% on the day at 1.0247.