The ECB surprises with a rate hike of 50 basis points, the first hike since 2011

The Governing Council of the European Central Bank (ECB) has decided to raise interest rates by 50 basis points, so that the interest rate for its financing operations will be 0.50%, while the deposit rate will reach 0% and the loan facility, 0.75%.

The ECB has thus agreed to an increase in the price of money greater than what it had advanced in recent weeks, when several members of the Executive Committee indicated that the rise would be 25 basis points. This is also the first rate hike since July 2011.

The monetary authority has explained that it has considered "appropriate" to undertake a higher increase than previously indicated due to the new data on inflation risks and to reinforce its other great announcement this Thursday: its anti-fragmentation mechanism, officially called the Instrument for Protection of the Transmission (TPI, for its acronym in English).

The ECB has indicated that the path of monetary policy normalization will continue in future meetings, although it has not indicated how long it will continue to raise interest rates. At its June meeting, the ECB announced a rate hike in September. Nor has it offered any future guidance, but decisions will be taken at each meeting.

"The future path of the Governing Council's rate policy will remain data dependent and will help achieve its 2% inflation target over the medium term," the Frankfurt-based bank said.

The ECB has indicated that the TPI is "necessary" to support an "effective" transmission of monetary policy. Its application will allow the authority to apply its monetary strategy equally to all the countries of the euro zone.

The TPI will be added to the ECB's 'toolbox' and will be activated to counter market dynamics that are disorderly and threaten the transmission of monetary policy.

The volume of purchases under the TPI will depend on the seriousness of the risks that the ECB has to face, but the purchases do not have any type of 'ex ante' restriction.

The ECB has recalled that, in any case, the principal of the overdue debt that has been purchased under the pandemic purchase program (PEPP) will continue to be reinvested until the end of 2024. On its side, the purchases of the public asset program (APP, for its acronym in English) will be maintained for an "extended" period of time since the ECB begins to raise interest rates, that is, from this moment.

INFLATION AND GDP.

The gross domestic product (GDP) of the euro zone registered a quarter-on-quarter increase of 0.6% in the first quarter of 2022, four tenths more than in the previous three months, according to the latest data published by Eurostat, the office of community statistics.

On the other hand, prices registered an inflation of 8.6% in May, five tenths more than in the previous month, due to the increase in energy and food prices, marking their maximum since there are records historical.

Likewise, the interannual rate of core inflation of the countries that have adopted the euro as their common currency, which is the result of excluding from the calculation the evolution of the prices of energy, fresh food, alcohol and tobacco, contracted by one tenth, up to 3.7%.

With regard to unemployment, the rate for May in the euro zone, the last available, fell one tenth, to 6.6%. In the EU as a whole, unemployment stood at 6.1%, the same figure as in March.

The next meeting of the Governing Council of the body responsible for the monetary policy of the eurozone will be held on September 8, 2022.