ECB president Christine Lagarde addressing the press following the Governing Council monetary policy meeting in Frankfurt on 27 July 2023. Photo: European Central Bank

ECB president Christine Lagarde addressing the press following the Governing Council monetary policy meeting in Frankfurt on 27 July 2023. Photo: European Central Bank

The European Central Bank raised its key interest rates by 25 basis points on Thursday 27 July, marking the ninth increase in the past year. It affirmed its commitment to a data-dependent approach to determine the appropriate level and duration of its monetary policy pressure.

Exactly a month ago, on 27 June, European Central Bank president Christine Lagarde , “Barring a material change to the outlook, we will continue to increase rates in July.” The governing council this statement on Thursday by implementing a 25bps rate increase.

This latest hike comes on the heels of eight preceding increases since July 2022, marking the highest deposit rate in the Eurozone in past 23 years. The new rates take effect from Wednesday 2 August.

A day prior, the Federal Reserve also a similar hike, raising US interest rates to their highest level in 22 years with a 25bps benchmark interest rate increase.

While Thursday’s 25bps increase reaffirms the ECB’s own monetary policy, market analysts are scouring for any signs that could indicate the ECB’s moves in the September meeting and on the .

“While some measures show signs of easing, underlying inflation remains high overall,” reads the ECB’s policy statement.

The rate reached 5.5% in June, barely shy of the record high of 5.7% set in March. However, in contrast, the economic outlook remains , with recent data revealing a significant decrease in credit demand from both and .

Future guidance

“The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction,” said the ECB.

These sentiments were echoed in the US Federal Reserve’s press briefing as well.

Jerome Powell, chair of the Federal Reserve, , “Looking ahead, we will continue to take a data-dependent approach in determining the extent of additional policy firming that may be appropriate.” He further added: “We will continue to make our decisions meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation as well as the balance of risks.”

In conclusion, data-dependency appears to be the guiding principle amidst fluctuating economic indicators.

Both the ECB and the Federal Reserve reaffirmed their commitment to steer inflation back towards their 2% target, while ensuring a balance between , and .

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