The European Central Bank announces a further rate hike of 50 basis points

The European Central Bank announces, today, a further rate hike of 50 basis points, bringing the cost of borrowing to 3.5%, as expected, fulfilling its pledge at the previous meeting.

It should be noted that the European Central Bank had pledged during its meeting held last month to increase interest rates in today's meeting by 50 basis points, to face inflation.

The European Central Bank confirmed that inflation is expected to remain very high for a long time, and at the same time indicated in its statement today that there are moves on interest rates ahead.

The ECB's rate hike of half a percentage point is also seen as a sign that the banking crisis will be short-lived, but it can also be seen as a monetary policy mistake, as confidence in the banking sector is under strong pressure.

The European Central indicated that it had lowered its expectations for the inflation rate before these recent developments, mainly due to a decline in the contribution of energy prices more than was previously expected, suggesting that average price increase rate would reach 5.3% in 2023, and 2.9% in 2024, and 2.1% in 2025.

Furthermore, the European Central Bank believes that underlying price pressures remain strong and expected the average core inflation rate, which excludes food and energy prices, to reach 4.6% this year, higher than its previous forecast in December, before declined to 2.5% in 2024 and 2.2% in 2025.

In its statement, the European Central Bank stressed that it is closely following the current situation and  ready to maintain price stability and financial stability in euro area.

The European Central Bank said in its statement that the banking sector in euro area is so strong to provide capital, liquidity and smooth transition of monetary policy.

Inflation fear remains, but the challenge is to overcome prices increase at a time when financial stability is already at a critical situation.