The ECB raised key interest rates by 50 bp as expected

The Governing Council of the European Central Bank (ECB) at a meeting on Thursday raised the base interest rate by 50 basis points – from 2% to 2.5% per annum. The regulator believes that it is necessary to further raise the rate to achieve the inflation target of 2%. These decisions will depend on the forecast for inflation and the economy.

The ECB has raised all three key rates by 50 basis points: the interest rate on the main refinancing operations and the interest rates on the margin credit line and deposit line will be increased to 2.5%, 2.75% and 2%, respectively, from December 21, 2022.

The increase in rates is the main tool of the European central bank's fight against high inflation. Moreover, the regulator intends to begin reducing the asset repurchase program in early 2023.

The ECB promises to adhere to a «moderate and predictable» approach to reducing the amount of assets on the balance sheet. Most likely, this will mean that the reduction of the balance sheet will occur not due to the sale of assets, but due to the refusal of the Central Bank from reinvestment of proceeds from redeemable securities.

More precise parameters of the «quantitative tightening» plan may be made public following the results of the meeting, which will not be accompanied by quarterly economic forecasts of the ECB, that is, on February 2.