The European Central Bank raised its key interest rate by a quarter of a percentage point on Thursday. ECB Chief Economist Philip Lane indicated the bank is ready to act further if inflation doesn't ease quickly enough.
Another 25 basis points
The move brings the deposit rate to 4.25%, its highest level since the euro was created. It's the eighth consecutive increase since July 2022, when the ECB began lifting rates from negative territory. The decision was widely expected by markets, though some economists had argued for a pause given signs of a slowdown in the eurozone economy.
Lane's inflation warning
Philip Lane, the ECB's chief economist, said after the decision that the bank remains "proactive" in its fight against inflation. He described the current price pressures as "stubborn" and noted that underlying inflation — which strips out volatile items like energy and food — is not declining as fast as the ECB would like. Lane said the bank's future decisions will depend on incoming data, but he left little doubt that more tightening could come if inflation doesn't fall back toward the 2% target quickly.
The rate rise will push up borrowing costs for households and businesses across the eurozone. Variable-rate mortgages in countries like Spain, Portugal and Italy will become more expensive immediately. The ECB has now raised rates by a cumulative 4.5 percentage points since last summer. The impact on the housing market has been mixed — prices have dipped in some countries but remain elevated in others.
Next steps
The ECB's next monetary policy meeting is scheduled for July 27. Markets are pricing in roughly a 50% chance of another quarter-point increase at that meeting, but much will depend on the inflation data for June, which is due out in the last week of the month. Lane said the ECB will be watching wage negotiations and corporate profit margins closely to see if companies are passing on higher costs to consumers.
