The European Central Bank raised interest rates by 75 basis points and signaled further tightening ahead as it fights record inflation that is rapidly eroding consumer spending power across the region, according to Politico.
“The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2%, 2.25% and 1.50% respectively,” the ECB said in a statement Thursday.
The central bank had been widely expected to deliver another jumbo rate hike as it marches ahead on its fastest tightening cycle on record. The ECB raised rates by a total of 2% over the last three meetings.
And more is to come. According to the release, the Governing Council “expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.”
The pledge comes after the ECB had come under increasing fire from ministers and leaders who fear aggressive tightening accentuates risks of a deep recession in the eurozone.
The ECB also announced measures that will reduce subsidies to banks that were increasingly weighing on central bank profitability and, by extension, robbing eurozone governments off much-needed cash.
The Governing Council decided to adjust interest rates on ultra-long loans to banks, so-called LTRO III. “From 23 November 2022 until the maturity date or early repayment date of each respective outstanding TLTRO III operation, the interest rate on TLTRO III operations will be indexed to the average applicable key ECB interest rates over this period,” it said.
The ECB will also offer banks additional voluntary early repayment dates.
The statement did not offer any hint on when the ECB might start to reduce its massive bond holdings by phasing out reinvestments.