Economist at UOB Group Lee Sue Ann comments on the latest ECB interest rate decision.
Key Takeaways
The European Central Bank (ECB) decided to raise its three key interest rates by 25bps. After a total of 450 bps rate hikes, the ECB’s main policy rates are now at a record high.
The ECB’s new projections show inflation slowing from a current rate of 5.3% to 3.2% next year and 2.1% in 2025, making only slow progress towards the bank's 2.0% target. The growth outlook continued to sour and the ECB now sees a 2023 expansion of just 0.7% after predicting 0.9% three months ago. For 2024, it sees the economy growing by 1.0%.
While we believe the door to future rate hikes remains open, we prefer keeping to our view of a pause in the current tightening cycle, implying terminal rates of 4.50%, 4.75% and 4.00% for main refinancing operations, the marginal lending facility and the deposit facility, respectively.
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