European Central Bank raises interest rates by 0.25%p

The European Central Bank (ECB) raised its benchmark interest rate by 25 basis points. Unlike the U.S. Federal Reserve (Fed), which left rates unchanged the day before, the ECB continued its streak of eight consecutive rate hikes, stating that inflation remains high. It signaled that it would continue to raise rates in July.

On Friday, the ECB held the Governing Council monetary policy meeting and announced that it would raise its key interest rate to 4.00 percent from 3.75 percent. The interest rates on the deposit facility and the marginal lending facility will be increased by 25 basis points to 3.5% and 4.25%, respectively. The ECB's deposit facility rate is the highest in 22 years. The rate hike widened the benchmark interest rate gap between Korea and the Eurozone by 0.5 percentage points, which was reversed last month.

"Inflation has been coming down but is projected to remain too high for too long,” the ECB said. “The Governing Council is determined to ensure that inflation returns to its 2 percent medium-term target in a timely manner. Therefore, today it decided to raise the three key ECB interest rates." Although Eurozone consumer price inflation came in at 6.1 percent in May, lower than the previous month's 7.0 percent, it was still well above the 2 percent target. As a result, the ECB decided to continue raising rates.

The ECB's rate hike streak is expected to continue next month. "There is a very good chance we will raise rates in July," ECB President Christine Lagarde said in a press briefing following the decision. "We are not thinking about pausing."


Sung-Hwi Kang yolo@donga.com