The European Central Bank has issued the following press release:
The European Central Bank (ECB) announced a 25 basis point increase in its three key interest rates to combat the ongoing high inflation pressures in the euro area. In a May 4 press conference, ECB President Christine Lagarde acknowledged the decline in headline inflation over recent months but emphasized that "underlying price pressures remain strong." The ECB will continue to follow a data-dependent approach to determine the appropriate level and duration of restriction.
Lagarde explained that the ECB's future decisions will ensure that policy rates are brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary. She stated, "Our policy rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.
The euro area economy experienced 0.1% growth in Q1 2023, according to Eurostat's preliminary flash estimate. Lower energy prices, easing of supply bottlenecks, and fiscal policy support for firms and households have contributed to the economy's resilience. However, private domestic demand, especially consumption, has remained weak. Lagarde highlighted the importance of governments rolling back support measures related to the energy crisis promptly to avoid driving up medium-term inflationary pressures.
Lagarde noted that the ECB is prepared to adjust all its instruments within its mandate to ensure inflation returns to the medium-term target and preserve the smooth functioning of monetary policy transmission. Despite the resilience of the euro area banking sector in the face of financial market tensions, the ECB President emphasized the importance of closely monitoring the situation, stating, "We stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission."
