ECB recap: A hawkish hike despite downside growth risks
The European Central Bank (ECB) increased the Deposit Facility Rate to 2.50%, the Refinancing Rate to 2.65% and the Marginal Lending Facility to 2.90%, effective from September 16.
The European Central Bank (ECB) raised key interest rates by 25 basis points to combat inflation, despite concerns about potential stagflation. The Deposit Facility Rate, Refinancing Rate, and Marginal Lending Facility were all increased to 2.50%, 2.65%, and 2.90% respectively, effective September 16. However, the ECB warned that inflation risks are tilted upwards, while growth risks are tilted downwards.
ECB President Christine Lagarde highlighted the economy's resilience, driven by consumption, public investment, and a recovery in services. Manufacturing also remains robust, and consumer confidence has rebounded. The central bank anticipates inflation averaging 3% in 2026, 2.5% in 2027, and 2.1% in 2028. While the near-term growth outlook has improved, the ECB faces a challenging energy shock.
They will continue to be data-dependent and meet each meeting to assess the situation, without committing to a specific rate path. The probability of another quarter-point rate hike at the October 29 gathering stands at just above 61%, with markets expecting nearly 35 basis points of tightening by year-end.
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