Instant View: ECB raises interest rates, as widely expected
ECB Rate Hike and Market Reactions
LONDON, June 11 (Reuters) - The European Central Bank raised interest rates on Thursday, in a aimed at curbing mounting inflationary pressures before a surge in energy costs triggered by the Iran war spreads more broadly across the euro zone economy.
Inflation in the 21-country currency bloc is already above 3%, well in excess of the ECB's 2% target, and economic growth is very weak - a backdrop that has economists split over the case for tighter policy.
The euro was last a touch lower on the day at $1.153, but little changed from where it had been prior to the decision. Short-dated euro zone bond yields, the most sensitive to shifts in monetary policy, edged up as prices fell modestly.
Two-year German bond yields were flat at 2.71%, up from around 2.678% earlier in the day.
The STOXX 600 pared some of the day's gains to show a 0.4% rise on the day, having traded up nearly 1% prior to the central bank's decision.
Expert Commentary on ECB Decision
COMMENTS:
Mark Wall, Chief European Economist, Deutsche Bank, London
“This is a significant moment. Not only is this the first ECB hike since 2023, it is also the first hike by one of the major global central banks in response to the energy shock. The ECB is saying that a ‘look through’ strategy is not a robust response. The question is how far can this tightening cycle go? 'Not far', is our answer. There is upside risk to inflation, but there is also downside risk to growth. One more hike in September and that’s it.”
Sandra Horsfield, Economist, Investec, London
"So far, what we heard from the ECB is really what they had trailed for some time. So, no surprises here. This is the type of shock that the ECB thinks it can't look through and it is necessary to act. I guess that has been very well trailed. We even heard some of the usually more dovish voices pointing in that direction."
Future Outlook for ECB Policy
"I guess the bigger question is what happens from here on. Our expectation is that the ECB would not have gone through with a hike if they thought just one hike would do the job to contain longer-term inflation pressures. But how much sign-posting they're willing to do on what their current thinking is, that is something that watchers will be looking out for."
Richard Carter, Head of Fixed Interest Research, Quilter Cheviot, London
"Markets are already pricing in a further rate hike at the ECB’s September meeting, but whether that materialises will depend heavily on developments in the Middle East and whether, and when, a meaningful resolution can be achieved. If a resolution is not met soon, we can expect higher energy costs to persist and broader inflationary pressures to mount, meaning policymakers may be forced to act again. The attention will now shift to whether the other major central banks will follow the ECB’s lead, but for now that looks unlikely."
Andrzej Szczepaniak, Senior European Economist, Nomura, London
"I think the key thing is the ECB still has inflation at target in 2028, so they're forecasting 2% for that. In terms of core inflation at the margin, it's slightly stickier and more persistent than we had pencilled in. So we had expected them to have 2.5%, 2.4%, and 2.1%. Instead, they have 2.5%, 2.5%, and 2.2%. So maybe a slightly stronger persistence in underlying inflation pressures due to the Iran war."
Kirstine Kundby-Nielsen, FX and Fixed Income Research, Danske Bank, Copenhagen
"New staff projections are revised to the hawkish side compared to our expectations. Inflation is revised slightly higher than we anticipated and growth is not revised down as much. Hawkish staff projections, but markets more driven by Trump."
Reporting and Compilation
(Reporting by EMEA Markets Team; Compiled by Amanda Cooper)
