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Emirates News Agency reported that European stocks closed lower on Thursday after the European Central Bank raised its key interest rates. The pan-European STOXX 600 index fell 0.13 percent while France’s CAC 40 shed 0.51 percent and Germany’s DAX ended 0.13 percent lower. Britain’s FTSE 100 index was an outlier with a 0.34 percent gain according to market closing data.
The ECB increased the main refinancing rate to 4 percent from 3.75 percent the deposit facility rate to 3.75 percent and the marginal lending facility to 4.25 percent. This decision marked the eighth consecutive hike in the central bank’s campaign to bring inflation back to its 2 percent target a Reuters dispatch noted. The governing council indicated that inflation is likely to remain too high for too long prompting expectations for another increase in July.
Accompanying the rate move the ECB lowered its economic growth projections for the euro area this year while revising upward its forecasts for core inflation. These adjustments reflect the central bank’s assessment of persistent price pressures despite emerging signs of economic slowdown. The policy shift coincided with hawkish signals from the U.S. Federal Reserve that added to global rate concerns.
Technology stocks and other growth-oriented sectors led the declines across the region as higher borrowing costs weighed on future earnings prospects according to sector performance figures. Real estate shares also came under pressure given their sensitivity to interest rate changes. Banking stocks showed resilience in some markets on expectations of improved margins from higher rates.
Eurostat statistics place the euro area annual inflation rate at 6.1 percent in May 2023 down from the peak but still substantially above the target. The central bank’s updated staff projections see inflation averaging 5.4 percent for the full year before falling to 2.8 percent in 2024 and 2.1 percent in 2025. Growth is anticipated at 0.9 percent in 2023 revised from a previous forecast of 1.1 percent.
The rate decision sent government bond yields higher with Germany’s two-year yield reaching levels not seen since 2008 in the days around the announcement. The euro initially strengthened against the dollar on the news before stabilizing. Market analysts will closely monitor upcoming data releases and corporate reports for indications of the tightening cycle’s effect on the real economy.
