Breaking: ECB hikes key rates by 25 basis points in May as expected

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 25 basis points (bps) following the May policy meeting, as expected. 

With this decision, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.75%, 4% and 3.25%, respectively.

Follow our live coverage of the market reaction to the ECB's policy announcements.

Key takeaways from policy statement

"Inflation outlook continues to be too high for too long."

"Overall, incoming information broadly supports assessment of medium-term inflation outlook that ECB formed at its previous meeting."

"ECB's future decisions will ensure that policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to 2% medium-term target and will be kept at those levels for as long as necessary."

"ECB's policy rate decisions will continue to be based on its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation, and strength of monetary policy transmission."

"Interest rates remain ECB’s primary tool for setting monetary policy stance."

"In line with these principles, ECB expects to discontinue reinvestments under APP as of July 2023."

"The APP portfolio is declining at a measured and predictable pace, as the Eurosystem does not reinvest all of the principal payments from maturing securities."

"The decline will amount to €15 billion per month on average until the end of June 2023."

Market reaction

EUR/USD came under modest bearish pressure and declined to the 1.1050 area with the initial reaction to the ECB's policy announcements.