ECB raises 3 key interest rates by 25 bps; EU inflation to remain high

Accordingly, 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 4 per cent, 4.25 per cent and 3.50 per cent respectively with effect from June 21.

Though inflation in the EU has been coming down, the European Central Bank projects it will remain too high for too long.
To ensure inflation timely returns to its 2 per cent medium-term target, the ECB governing council has raised the three key interest rates by 25 basis points.
Eurosystem staff expect headline inflation to average at 5.4 per cent in 2023.

According to the June macroeconomic projections, Eurosystem staff expect headline inflation to average at 5.4 per cent this year, 3 per cent in 2024 and 2.2 per cent in 2025.

Indicators of underlying price pressures remain strong, although some show tentative signs of softening.

Staff have revised up their projections for inflation excluding energy and food, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation. They now see it reaching 5.1 per cent in 2023, before it declines to 3 per cent in 2024 and 2.3 per cent in 2025, an official release said.

Staff have slightly lowered their economic growth projections for this year and next year. They now expect the economy to grow by 0.9 per cent in 2023, 1.5 per cent in 2024 and 1.6 per cent in 2025.

Tighter financing conditions are a key reason why inflation is projected to decline further towards target, as they are expected to increasingly dampen demand, the release added.

Fibre2Fashion News Desk (DS)