ECB Hikes Rate By 25 bps; Euro Pulls Back Slightly In Immediate Reaction

Published on Jul 27, 2023 17:55

The euro came under selling pressure in immediate reaction to ECB monetary statement. The European central bank decided to raise the three key ECB interest rates by 25 basis points as inflation continues to decline but is still expected to remain too high for too long. The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Currently the EURUSD pair is trading at $1.1155, up 0.2%.

As per the statement, the rate increase today reflects the Governing Council`s assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. The developments since the last meeting support the expectation that inflation will drop further over the remainder of the year but will stay above target for an extended period. While some measures show signs of easing, underlying inflation remains high overall. The past rate increases continue to be transmitted forcefully: financing conditions have tightened again and are increasingly dampening demand, which is an important factor in bringing inflation back to target, the monetary policy noted.

The Governing Council`s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the 2% medium-term target. The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction, ECB stated.