Key Points of the ECB Rate Decision:
In accordance with forecasts, the European Central Bank increased interest rates by 50 basis points. In order to guarantee that inflation reaches its medium-term objective of 2% in a timely manner, the central bank anticipates raising rates further. The ECB has confirmed that it will raise interest rates by an additional 50 basis points at its next monetary policy meeting in March, after which it will assess the future course of its monetary policy. However, inflation is still a problem.
Furthermore, the central bank stated that because the Eurosystem would not reinvest all of the principal payments from expiring assets, the APP portfolio will shrink at a controlled and predictable rate. Up to the end of June 2023, the drop will cost an average of €15 billion every month, and its rate after that will be decided over time.
The March Meeting and Beyond: Looking Ahead
Given the varied economic conditions in the Euro region, the ECB has a difficult job. According to the Bank’s own December predictions, inflation will continue to be over its target rate of 2%, reaching 3.4% in 2024 and 2.3% in 2025. Since the ECB’s December meeting, energy prices have plummeted, which may cause the ECB to decrease its inflation estimates going forward. The IMF’s caution that the conflict continues to represent a serious danger to global recovery, however, shows that it is still a source of uncertainty.
Looking ahead to the future ECB Meetings and the remainder of the year, the ECB’s actions are expected to be influenced by inflation, particularly the statistics on core inflation. Despite some encouraging signals, ECB officials have remained hawkish going into this meeting. ECBS Klaas Knot stated that he wants at least two further 50bps rises (today’s meeting and the one in March), which seems to be the plan given the policy statement.
Market response
Following yesterday’s FOMC meeting, the price has reached the psychological 1.1000 mark, and there isn’t much resistance left until the 1.1200 level. At the top of the ascending channel, which we have been trading within since mid-November, we are also displaying rejection indicators.