ECB signals intention to hike rates by 25bp in July, possibly more in September
The European Central Bank announced that it will wrap up its asset purchases on 1 July and execute a first rate hike of 25 basis points that same month, followed by another - possibly larger - increase in September and with more to come thereafter.
It also left the door open to an interest rate hike of more than 25bp September "if the medium-term inflation outlook persists or deteriorates."
Until then, all its main interest rates would remain unchanged, with that for the main refinancing operations, on the marginal lending facility and the deposit facility at 0.00%, 0.25% and -0.50%, respectively.
In its monetary policy statement, the ECB's governing council also said that the bank's staff had upwardly revised their short-to-medium term inflation projections.
Headline consumer prices in the euro area were now seen advancing at annual rates of 6.8% in 2022, 3.5% in 2023 and 2.1% in 2024.
At the core level, CPI was seen clocking in at 3.3%, 2.8% and 2.3% for each of those years, respectively.
The ECB also attributed the significant rise in headline CPI in May to a surge in energy and food prices, including because of the war in Ukraine.
"These projections indicate that inflation will remain undesirably elevated for some time.
"However, moderating energy costs, the easing of supply disruptions related to the pandemic and the normalisation of monetary policy are expected to lead to a decline in inflation."
As well, the monetary authority said that it would continue reinvesting the maturing principal amounts from both its Asset Purchase Programme and from its Pandemic Emergency Purchase Programme.
In particular, should renewed market fragmentation linked to the pandemic arise, then it could adjust PEPP reinvestments to include Greek sovereign debt.
For Andrew Kenningham, Chief Europe Economist at Capital Economics, the most significant bit of the ECB's policy statement was what it left out.
"The most significant thing about the statement is what it does not say.
"There is no new detail whatsoever about the putative 'spread-fighting tool' which is intended to prevent peripheral spreads widening too far."
At 1258 GMT, euro/dollar was little changed, edging up by 0.15% to 1.0732.