ECB raises deposit rate to 1.5%, highest since 2009

Content of the article

FRANKFURT — The European Central Bank raised interest rates for the third consecutive meeting on Thursday and announced plans to begin mopping up liquidity from the banking system to combat record inflation.

The ECB reversed years of aggressive stimulus in months after being blindsided by a sudden spike in prices – the result of rising energy costs caused by Russia’s invasion of Ukraine and the uneven reopening economy after the COVID-19 pandemic.

Content of the article

The central bank of the 19 countries that share the euro raised the interest rate it pays on bank deposits by 75 basis points, bringing it to its highest level since 2009 at 1.5%.

Content of the article

“The Governing Council has taken today’s decision and expects to raise interest rates further to ensure inflation returns quickly to…2%,” the ECB said.

But the ECB reiterated its intention to continue reinvesting proceeds from the €3.3 billion bond stack purchased under its asset purchase program (APP) over the past eight years, when she thought inflation would stay low.

« The Governing Council intends to continue to reinvest, in full, the principal payments of maturing securities purchased under the APP for an extended period, » the ECB said.

Finally, the ECB changed the terms of its longer-term refinancing operations to encourage banks to repay these multi-annual loans early.

With Thursday’s decision, the ECB also raised the rate on its main refinancing operation, a weekly cash auction that banks have barely tapped for years, to 2.0% from 1.25% and the one of its daily marginal lending facility at 2.25% versus 1.5%.

ECB President Christine Lagarde will explain the policy decisions at a press conference at 12:45 GMT. (Reporting by Francesco Canepa; Editing by Catherine Evans)