The European Central Bank raised its key interest rates by 25 bps during its May meeting, signaling a slowing pace of policy tightening. Nevertheless, borrowing costs have now reached their highest level since July 2008, following seven consecutive rate increases as the ECB strives to combat high inflation despite ongoing recession risks. The central bank also announced plans to discontinue the reinvestment of cash from maturing bonds purchased under the €3.2 trillion APP from July.
Latest economic data revealed that the inflation rate in the Euro Area rose to 7% in April, with the core rate remaining close to March’s all-time high at 5.6%. The interest rate on the main refinancing operations, as well as the interest rates on the marginal lending facility and the deposit facility, increased to 3.75%, 4.00%, and 3.25%, respectively. Meanwhile, President Lagarde told a news conference that the ECB had more ground to cover and it was not pausing the rate-lifting cycle anytime soon.