The Thursday meeting of the Board of Governors of the European Central Bank (ECB), which took place on September 14 this year, 2023, adjusted its bank rates by further increasing them to the current record level of interest rates in the eurozone. Thus, over the last 15 months or so, i.e. from June of last year 2022 to the present, the central bankers of the eurozone have increased the deposit rate from a negative value in the amount of -0.5% p.a. to the current value, which has already reached 4% per year. Yesterday, on September 14, 2023, the ECB approved an increase of another 25 basis points and the base interest rate thus reached a value of 4.50% per annum.
The financial markets and especially the international foreign exchange market reacted to this fundamental decision as the use of the ECB’s monetary policy tool. Already during the European evening of Thursday 14/09/2023, at approximately 19:17 CET, there was a drop in the exchange value of the single European currency, the euro (EUR), against the US dollar (USD), as the world’s reserve currency, when this so-called global currency pair EUR/USD was trading at a mutual exchange rate of $1.065 per EUR in forex operations of the foreign exchange market with the EUR down -0.755% against the USD at the given time and deepening during the evening and early night. Currently, during the European morning of Friday 15/09/2023, at approximately 6:28 CET, this currency pair EUR/USD moved at the value of the mutual exchange rate at approximately the same level as yesterday during the European evening, at the rate of 1.065 USD per EUR, but already in the trading trend of the strengthening of the EUR against the USD by + 0.05% of the current daily rate.
Thus, on Thursday, September 14, 2023, the European Central Bank (ECB) announced its tenth increase in the main interest rate in a row, as the fight against inflation took precedence over the weakening economy. The rate hike has now pulled the eurozone central bank’s main deposit facility (rate) down from -0.5% in June 2022 to a current record 4 percent. The main reason for Thursday’s increase appeared to be upward revisions in the experts’ newly published macroeconomic projections for the eurozone, which forecast inflation to average 5.6% this year in 2023 from a previous forecast of 5.4% and 3.2% next year 2024 from the previous forecast, which indicated the volume of the inflation rate at a value of 3 percent. On the other hand, eurozone central bankers from the Governing Council of the European Central Bank (ECB) at this Thursday’s meeting on 14/09/2023, however, moved their closely watched medium-term forecast lower, from the original inflation estimate of 2.2% to 2.1%. In a statement on market movements, the ECB also said that further hikes may be off the table for now, according to economic reporters.
Based on this communication from the ECB representatives, financial strategists from the money market segment and especially the banking sector believe that this record increase in interest rates could thus represent the imaginary peak of interest rates in the eurozone. While the ECB has strongly signaled its next steps in previous meetings, economists and analysts have been divided on whether the doves or hawks will win at this year’s September meeting in Frankfurt. Money markets were suggesting a roughly 63% chance of a hike by Thursday morning, versus a more even split in recent days. “Some members of the Board of Governors have not come to the same conclusion, and some governors would prefer to hold off and reserve a future decision once more certainty, more information emerges with the passage of time and the impact of many of our previous decisions. “But I can tell you that the vast majority of governors agreed with the decision we made,” ECB President Christine Lagarde said at a press conference. Furthermore, Ms Lagarde said there was no concrete answer as to whether the rate hike was complete as the ECB’s Governing Council remained dependent on the data.
