European Central Bank raises interest rates, as inflation outlook is ‘too high for too long’ – business live | Business

ING: ECB is in final stage of tightening cycle

The European Central Bank’s interest rate tightening cycle is the fastest in the history of the ECB, says Pictet Wealth Management’s Fred Ducrozet:

The ECB says any future interest rate increases will depend on the inflation outlook, underlying price pressures and the effectiveness of monetary policy transmission.

The Governing Council’s future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary.

The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s policy rate decisions will continue to be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.

Today’s ECB rate rise comes 10 months after the eurozone central bank made its first rate hike in 11 years.

The ECB says today that its earlier interest rate rises are having an impact on financial conditions:

Headline inflation has declined over recent months, but underlying price pressures remain strong.

At the same time, the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain.

European Central Bank lifts interest rates by 25 basis points

Tension is rising in the markets as investors await the European Central Bank’s decision on interest rates, in 10 minutes.

The ECB is widely expected to raise its benchmark rates by a quarter of one-percent, as Joel Kruger, market strategist at LMAX Group, explains:

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“The Euro has already been feeling better in the aftermath of Wednesday’s Fed meeting with the Fed opening the door to the possibility of pause on rate hikes. In terms of the ECB decision, the broad consensus is that the ECB will raise rates by 25 basis points but, unlike the Fed, will hold to a more hawkish leaning outlook, highlighting more rate hikes ahead. Core inflation is simply still too high to ignore and given what we’ve been hearing from ECB officials in recent weeks, we suspect this will indeed be the message.
“The less likely outcome is that the central bank would go ahead with another 50 basis point hike, though we have a hard time seeing this play out as we don’t believe the ECB will want to rock the boat too much – especially considering the message will already be hawkish, as the ECB alludes to the possibility for more rate hikes and considering the latest Fed mood.
“One final possibility is that the ECB raises 25 basis points and follows the Fed, leaning more dovish, perhaps offering no new willingness to commit to additional rate hikes. While this is possible, we have a hard time seeing it play out given how focused the ECB has been on battling inflation.

On net we believe today’s decision should produce a 25 basis point hike, along with a willingness to continue to raise rates going forward. Should this play out we suspect it will be supportive of the Euro. Though depending on just how much everyone is expecting the scenario, the Euro could sell off on the fact.

Pound hits 11-month high against US dollar

Factories across the eurozone have cut their prices, as cost pressures eased.

Industrial producer prices fell by 1.6% in the euro area during March, and by 1.5% in the wider EU, statistics body Eurostat reports.

That could feed through to consumers in coming months, easing inflation.

But, producer prices were still 5.9% higher in the eurozone than a year ago, and 7.0% higher in the EU compared with March 2022.

Lunchtime reading! With the Coronation just two days away, our economics editor Larry Elliott has looked into the differences – and similarities – between the Britain of 2023 and the one of seven decades ago.

He explains:

Double-digit inflation prompted by a regional war. Essential goods in short supply in the shops. Shortages of workers. In some respects the economy when Charles III is crowned king this week has distinct echoes of his mother’s coronation 70 years ago.

In other respects, Britain is an entirely different place. In 1953, the retreat from empire was under way, the welfare state was in its infancy and membership of the European Economic Community was two decades away.

But while people are richer, and live longer, taxes are higher, house prices have surged while the number of new properties being build has fallen.

Here’s the full piece:

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UK firms still face ‘challenging’ business conditions, the latest realtime survey of the economy shows.

The Office for National Statistics reports:

Latest results suggest business conditions continue to remain challenging, but estimates show small signs of positive improvement for some measures; examples include a stable proportion of businesses reporting they were able to get materials, goods and services from within the UK, and more businesses reported having fewer concerns for their business.

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Julia Kollewe