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

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 50 basis points (bps) following the March 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 3.5%, 3.75% and 3%, respectively.

In its policy statement, "elevated level of uncertainty reinforces importance of a data-dependent approach to ECB’s policy rate decisions, which will be determined by its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation, and strength of monetary policy transmission," the ECB noted.

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Market reaction

EUR/USD edged slightly higher with the initial reaction and was last seen rising 0.3% on the day at 1.0610.

Key takeaways from the policy statement

"ECB staff macroeconomic projections were finalised in early March before recent emergence of financial market tensions."

"ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025."

"Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in December projections."

"ECB staff then expect growth to pick up further, to 1.6%, in both 2024 and 2025, underpinned by a robust labour market, improving confidence and a recovery in real incomes."

"APP portfolio decline will amount to €15 billion per month on average until end of June 2023 and its subsequent pace will be determined over time."

"As concerns PEPP, ECB intends to reinvest principal payments from maturing securities purchased under programme until at least end of 2024."