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EUR | Jun 22, 2022

European Central Bank intends to raise key rates by 25 bps in July

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The European Central Bank (ECB) logo in Frankfurt, Germany, January 23, 2020. (Photo: REUTERS/Ralph Orlowski/File)

European Central Bank (ECB) president Christine Lagarde has indicated that the bank intends to raise key rates by 25 basis points at the July policy meeting.

Last Thursday (June 16), the ECB’s governing council decided to keep its benchmark deposit rate at -0.50 per cent, as unanimously expected by market participants. The bank also said that it intends to raise interest rates by 25 bps at the July meeting.

Lagarde, who made the announcement, explained that the move will come after the ECB ended its Asset Purchase Programme (APP) on July 1, 2022. She told Paschal Donohoe, the Eurozone finance minister, that fragmentation risk was a serious threat to the price stability mandate.

Testifying before the Committee on Economic and Monetary Affairs of the European Parliament last Thursday, Lagarde told finance ministers that, “Euro area activity is being dampened by high energy costs, intensified supply disruptions and greater uncertainty. Price rises are becoming more widespread across sectors and measures of underlying inflation have risen further.”

As such, she advised European parliamentarians to expect a rise in the ECB’s interest rates again in September. In a reaction to the news, the capital market seems to have lost its bullish momentum.

However, the EUR/USD continues to trade in positive territory slightly above 1.0500. EUR/USD has gone into a consolidation phase after having climbed toward 1.0600 earlier in the day.

With Wall Street’s main indexes posting strong gains after the opening bell, the dollar is having a difficult time finding demand as a safe haven. 

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