ECB towards new rates?

ECB Vows More Hiking to Come After Slowing Tightening Pace

· Deposit rate raised to 3.25% from 3%, as economists predicted

· ECB also said it will stop APP bond reinvestments as of July

By Jana Randow and Alexander Weber

The European Central Bank delivered the smallest interest-rate increase yet in its battle with persistently strong inflation but insisted that the move won’t be the last.

Officials raised the deposit rate by a quarter-point to 3.25%, following three steps of double that size. The announcement matches the expectations of traders and most economists, leaving the rate at its highest level since 2008.

The Governing Council said future decisions will remain data-dependent as they bring rates to levels sufficiently restrictive to return inflation to the 2% target. They’ll be kept there for as long as necessary, it said.

“We have more ground to cover and we are not pausing,” President Christine Lagarde told a news conference. “That’s extremely clear.”

The ECB’s stash of bonds from both APP and the smaller Pandemic Emergency Purchase Program amounts to roughly €5 trillion ($5.5 trillion). While shrinking the APP portion by €15 billion a month from March didn’t cause any ruptures on financial markets, analysts polled by Bloomberg had only expected reductions to quicken more gradually.

Reinvestments under the separate PEPP initiative will continue as planned at least through 2024, according to Lagarde.

Money markets eased rate-hike wagers following the decision, betting that the deposit rate will peak by September.