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ECB raises key interest rates by 50 bps since June
ECB Governing Council cited a worsening inflation outlook since the start of the Middle East conflict for the rate increase.
ECB says inflation is weighing on everyday life again in the euro area, after the region had moved past a post-pandemic inflation surge and then faced new shocks. The ECB warned that the pattern of overlapping shocks complicates monetary policy, including how inflation expectations form and how persistent inflation may become.
In a speech by Isabel Schnabel, the ECB said it has made its monetary policy framework more transparent by laying out its reaction function as of 2023. The ECB described the inputs to the Governing Council’s decisions as including the inflation outlook and related risks, the dynamics of underlying inflation, and the strength of monetary policy transmission.
Schnabel said the ECB has taken timely action as the inflation outlook deteriorated since the start of the Middle East conflict. The central bank added that since June, the Governing Council has raised key ECB interest rates by 50 basis points and linked the move to the need to maintain price stability amid heightened inflation salience.
The ECB also said explaining its actions and the reasons behind them is intended to foster public trust in its commitment to price stability in an environment where inflation has become more prominent.