The European Central Bank (ECB) has taken a step forward to reduce inflation in the Euro Area, by raising its key interest rates by 25 basis points. The decision was made at the ECB’s May 4 meeting, sending a message that policy rate increases will be executed at a moderate pace. As a result, the inflation rate reached 7% in April - a record high since the start of the Euro Area. The announcement has caused a positive reaction in the cryptocurrency market as the prices of Bitcoin and Ether penetrated the $29K and $1900 marks respectively.

The ECB is targeting a policy rate close to the 2% objective and intends to keep rates low for as long as it takes. To do this, the ECB increased the main refinancing operations, the marginal lending facility, and the deposit facility to 3.75%, 4.00%, and 3.25%, respectively. Furthermore, the Governing Council announced that it will no longer reinvest proceeds from the Eurosystem’s asset purchase program (APP) starting July 2023.

The Euro declined slightly after the ECB’s announcement, and the US Dollar Index (DXY) spiked from 101.11 to 101.57. Similarly, the stock markets turned red in response. As for the cryptocurrency market, Bitcoin regained strength and turned green, despite the minor pressure due to the DXY index.

The ECB, led by Christine Lagarde, has made it clear that the easing of monetary policy will depend on existing data. The ECB main objective is to bring Euro Area inflation down to a healthier rate and restore the balance of the monetary system. In this sense, the interest rate increase could be seen as the ECB’s attempt to gain control over the economy and paving a path to recovery and stability.



Other News from Today