The European Central Bank had a clear message when it raised interest rates by a quarter of a percentage point on Thursday: it’s not over yet.

Even as the central bank, which sets interest rates for the 20 countries that use the euro, slowed the pace of its monetary policy tightening, Christine Lagarde, the bank’s president, made it clear that fighting inflation was not over. complete.

“We are not going to pause, that is very clear,” Lagarde told reporters in Frankfurt on Thursday. “We know we have more ground to cover.”

The quarter-point move is the smallest hike policymakers have imposed since they began raising rates last summer, a campaign of seven straight hikes that has become the fastest rate hike in two decades. of bank history. Thursday’s downside came as the bank recognized the impact that previous rate hikes are now having across the eurozone.

But the insistence that the European Central Bank was not ready to stop its rate-raising cycle follows speculation that other major central banks, notably the Federal Reserve and the Bank of England, are much closer to halting hikes. of rates. On Wednesday, the Federal Reserve raised rates by a quarter point, putting them above 5 percent for the first time since mid-2007, while signaling that future increases were no longer a certainty.

In the eurozone, “inflation prospects remain too high for too long,” Lagarde said on Thursday. “Headline inflation has eased in recent months, but underlying price pressures remain strong.”

Data released earlier this week showed the eurozone inflation rate rose in April, with prices up 7 percent from a year earlier. The annual inflation rate was 6.9 percent in March.

Still, within the inflation report there were some signs to support a slowdown in policy tightening and analyst expectations that the central bank is nearing the end of this higher interest rate cycle. The headline rate of inflation has fallen from its peak of 10.6 percent in October, and the core rate, which excludes energy and food prices, was slightly below 5.6 percent last month.

Policymakers are closely watching measures of so-called core inflation that indicate how much inflationary pressure is being generated within the region’s economy, such as through wage growth or rising business prices. to maintain profit margins, rather than being imported through higher energy costs.

“The fact that the ECB slowed the rate of hikes again suggests that the peak is not far away,” Holger Schmieding, an economist at Berenberg, wrote in a note. He predicted two more quarter point gains.

Policymakers also highlighted the growing body of evidence that past rate hikes are having an impact on financial conditions, justifying the smaller move in interest rates. Demand for loans fell earlier this year and banks have substantially tightened the criteria they use to approve loans to homes and businesses. Deterioration of loan conditions they tend to lead to a slowdown in the economy, which would weaken inflation.

“Previous rate increases are being passed down strongly to financial and monetary conditions in the euro area,” Lagarde said. It is not yet clear how much that will weigh on the economy beyond the banks, but he added that a “sharper slowdown in bank lending” would reduce price pressures more than expected.

The central bank began raising interest rates last July for the first time in a decade as energy prices soared and inflation spiked across the bloc. Since then, policymakers have raised rates by half to three-quarters of a percentage point as they try to quickly turn around the bank’s very accommodative policy stance in the wake of the coronavirus pandemic. The bank deposit rate, which is what banks receive for depositing money at the central bank overnight, rose to 3.25 percent on Thursday, from minus 0.5 percent last July.

Even as inflation has peaked in the United States and Europe, policymakers have been careful to keep their options open about their next moves. Traders are betting that rate-raising cycles are about to end, and some analysts have raised concerns that elevated rates it could go too far and inflict unnecessary damage on economies around the world. But policymakers have said they want to see firm evidence that domestic inflation pressures have eased enough for inflation to return to their 2 percent targets.

“All the governors are determined to fight inflation, control it and bring it back to 2 percent in the medium term,” Lagarde said.

He added that future decisions by the 26-person Governing Council would ensure that Rates would be “brought down to sufficiently restrictive levels” to bring inflation back to target and “maintained at those levels for as long as necessary.” But he did not offer precise details of what would come next, instead stressing that each decision is made based on the latest economic and financial data.

“This is a hiking trip that we are on,” he added.

When the European Central Bank last set policy rates in mid-March, financial markets were in turmoil among banks, after two banks in the United States failed and Swiss lending giant Credit Suisse, under pressure, was bought by rival UBS.

At the time, Lagarde said that if the banking uncertainties faded and the central bank’s inflation outlook remained the same, then the authorities would have to keep raising rates. Despite the fact that a third US bank, First Republic, collapsed this week, eurozone banks have weathered the market turmoil leaving room for the central bank to continue raising interest rates.

The European Central Bank also said it expected to increase the reduction of its bond holdings by toughening his political stance. Starting in July, it will stop reinvesting proceeds from maturing assets purchased under its broader bond-buying program, which had around 3.2 trillion euros ($3.5 trillion) in assets at the end of the year. of April. In the past, bonds, mostly government debt, were bought to encourage banks to make more loans and investments and generate more economic activity.

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