At its September meeting, the ECB decided unanimously to hike its three key interest rates by 75bp. Hence, interest rates on the main refinancing operations, the marginal lending facility, and the deposit facility will increase to 1.25%, 1.50% and 0.75%, respectively. The move was in line with market expectations.

The ECB is much more concerned about the risk of inflation expectations getting deanchored than about downside risks to growth, as shown by ECB staff projections. They raised their inflation outlook to above target at 2.3% in 2024, with upside risks. Inflation is now expected to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024. Strong inflation is driven by soaring energy and food prices, strong demand in the services sector after the post-Covid reopening, and supply-chain bottlenecks.

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