The European Central Bank lifted its deposit rate to 3%, the highest level since late 2008, as inflation is seen overshooting its 2% target through 2025
The European Central Bank raised interest rates by 50 basis points on Thursday as promised, ignoring financial market chaos and calls by investors to dial back policy tightening at least until sentiment stabilizes.at its fastest pace on record to curb inflation, but a rout in global markets since the collapse of Silicon Valley Bank in the United States last week had threatened to upend those plans at the last moment.
“The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions,” the ECB said. The key worry for the ECB is that monetary policy works via the banking system, and a full blown financial crisis would make its policy ineffective.
Inflation is seen averaging 5.3 per cent this year, 2.9 per cent in 2024 and 2.1 per cent in 2025, the ECB said, adding that these projections were finalized before the current turmoil. Some economists also argued that the ECB has plenty of instruments to fight market stress, and so had not needed to sacrifice the rate move to keep financial assets buoyant.
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