The ECB lifted interest rates by 50 bps during December meeting,which is a fourth rate increase, following two consecutive 75bps hikes. That takes the deposit facility to 2%, the refinancing rate to 2.5% and the marginal lending to 2.75%, a level not seen in fourteen years. Policymakers also said that based on the substantial upward revision to the inflation outlook, expect to raise them further. Inflation forecasts were revised higher, with average inflation seen reaching 8.4% in 2022 before decreasing to 6.3% in 2023. Inflation is then projected to average 3.4% in 2024 and 2.3% in 2025. The possible recession will be short-lived, growth next year will be rather flat.
Initial reaction shows that the market considered the decision as hawkish - EUR strenghtned while European equities ticked lower. Investors will focus now on ECB President Lagarde comments at the press conference regarding the economic outlook, geopolitical tensions, inflation and fiscal stimulus.
DE30 fell sharply following the ECB decision and is heading towards support at 14127 pts. Source: xStation5
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