The European Central Bank is expected to keep its deposit rate at 2.5%, with its next interest rate increase postponed to December. The slowdown in the European economy and turbulence in the bond market are heightening concerns over growth prospects.
Weakening economic activity in the Eurozone appears to be forcing the ECB to delay its next hike, at least temporarily. Concerns about growth are beginning to carry more weight than persistent inflationary pressures.
MARKET ATTENTION TURNS TO FISCAL WORRIES
The shift comes while market attention is focused on the fiscal crisis. Turbulence in the bond market is a further source of concern over growth prospects.
HOW THE TIGHTENING CYCLE REACHED 2.5%
Rates have risen from a record low of -0.5% in July as the ECB responded to soaring inflation. The bank has since lifted its deposit rate by another half a percentage point to 2.5%, its highest level since November 2008.
The ECB has said it has raised rates by a cumulative 300 basis points, bringing the deposit facility rate to 2.5%. Under current conditions of ample excess liquidity, it described that rate as the main instrument for steering its monetary policy stance.
BALANCE SHEET REDUCTION CONTINUES
The ECB had also decided that its asset purchase programme portfolio would decline by an average of €15 billion per month from March until the end of June 2023. The pace of reduction after that was to be determined over time.
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