ECB Hikes by Half Point as Lagarde Warns of More Such Moves

The European Central Bank increased interest rates by a half-point, with President Christine Lagarde telling investors to prepare for a long-running campaign of similar moves to quell the worst inflation in the history of the euro.
After successive hikes of 75 basis points, the ECB lifted the deposit rate more slowly on Thursday, to 2%, as economists expected. Pledging to push borrowing costs “significantly” higher, officials widened efforts to tame prices with a decision to shrink their €5 trillion ($5.3 trillion) bond portfolio.
“Anybody who thinks that this is a pivot for the ECB is wrong,” Lagarde told a news conference. “We should expect to raise interest rates at a 50 basis-point pace for a period of time.”
“We have more ground to cover, we have longer to go and we are in for a long game,” she said.
Traders added to rate-hike bets, pricing a deposit-rate peak of 3% next year, compared with 2.93% earlier. The Stoxx Europe 600 Index dropped as much as 2.9%, sinking to the lowest level in a month and by the most in nearly two months as rates-sensitive sectors like technology and retailers slumped.
Lagarde said financial markets hadn’t adequately accounted for the amount borrowing costs would need to rise to quell inflation.
Complementing the rate push, officials outlined plans for quantitative tightening — offloading government debt purchased as stimulus in the past. The plan envisages partially halting reinvestments of maturing bonds under the Asset Purchase Program from March. Volumes will average €15 billion a month in the second quarter, with the pace beyond that yet to be determined.
The ECB’s downshift on rate hiking, along with similar action this week by the Federal Reserve and the Bank of England, may reflect belief that the worst inflation in a generation — while not vanquished — is at least near its peak.
The announcement follows a first dip in 1 1/2 years for runaway euro-zone price gains and comes with the currency bloc probably already in recession.
But, like the Fed, the message was that monetary tightening has some way to run yet — despite policymakers in Frankfurt already overseeing the ECB’s most forceful-ever spell of rate hikes.
“If you were to compare with the Fed, we have more ground to cover, we have longer to go,” Lagarde said.
Fresh projections, also released Thursday, will help determine how long. With Russia’s war in Ukraine still raging, the predictions confirmed a challenging backdrop that includes economic expansion ...
15 Dec 2022 10AM English South Africa Business News · Business

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