One year after launching the fastest rate hike cycle in their history, the guardians of the euro have stayed the course with a cumulative increase of 4.25 percentage points to date.

The rate hike of 0.25 percentage points decided on Thursday, as in June, brings the bank liquidity deposit rate at the ECB, which references, at 3.75%, to the highest since spring 2001.

In the United States, the Federal Reserve had shown the way the day before by resuming its cycle of raising its key rate, to 5.5%, its highest since 2001 too.

ECB © interest rates Sylvie HUSSON / AFP

In the euro zone, "inflation continues to slow", but "should always remain too high for too long a period", justified the ECB in a statement after a meeting in Frankfurt.


She said Russia's suspension of the agreement on Ukrainian grain exports via the Black Sea could help accelerate price increases.

At the same time, the monetary institute has marked a significant shift.

After nine successive interest rate hikes, he hinted that he might pause at the next meeting.

The headquarters of the ECB, July 27, 2023 in Frankfurt, Germany © Daniel ROLAND / AFP

"We have an open attitude regarding the decisions that will be taken in September and at subsequent meetings," which will depend on available economic data, ECB President Christine Lagarde told reporters.

"We are moving to a period where we will be dependent on economic data," she added, and it is they who will decide "whether we raise (rates) or if we pause," Lagarde said.

"It could be a hike, or a pause," she added, "it will depend on the meetings."

In September the institute will have new economic projections and will have taken note of the evolution of inflation until August.

The ECB has emerged from the "auto-pilot" mode of recent months, when each rate hike was pre-announced at the previous meeting, said Carsten Brzeski, an economist at ING.

But inflation and growth projections until 2025 will have to be "significantly lower" to prevent the monetary institute from raising rates "at least once more after today," he added.

A further rate hike "is not excluded, but a little less likely today than yesterday," said Jens-Oliver Niklasch at LBBW.

Lagarde said the Governing Council would not cut rates in future meetings.

Inflation in the euro zone is certainly declining, to 5.5% over one year in June, but mainly thanks to the decline in energy prices, and remaining well above the 2% target set by the ECB.

'Risky' policy

The door to a pause in the eurozone is explained by the fact that previous increases are starting to be felt, with credit demand at an all-time low, slowing price increases.

Lagarde also said the eurozone's economic outlook had "deteriorated" in line with rising criticism of monetary tightening.

ECB President Christine Lagarde on July 27, 2023 in Frankfurt, Germany © Daniel ROLAND / AFP

The policy of high rates is "risky" and could "prolong the phase of economic weakness in Europe and Germany that we are currently experiencing," said Thursday the president of the Berlin institute DIW Marcel Fratzscher.

The eurozone fell into mild recession last winter. In its latest forecasts, the International Monetary Fund expects the region's gross domestic product to grow by 0.9% in 2023, despite a decline in Germany (-0.3%), the only G7 country that is expected to see the recession continue.

© 2023 AFP