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The ECB hiked again:

The European Central Bank opted for a smaller rate hike at its Thursday meeting, taking its key rate from 1.5% to 2%, but said it would need to raise rates “significantly” further to tame inflation.

t also said that from the beginning of March 2023 it would begin to reduce its balance sheet by 15 billion euros ($15.9 billion) per month on average until the end of the second quarter of 2023.

It said it would announce more details about the reduction of its asset purchase program (APP) holdings in February, and that it would regularly reassess the pace of decline to ensure it was consistent with its monetary policy strategy.

The widely expected 50 basis point rate rise is the central bank’s fourth increase this year. A basis point is equivalent to 0.01%.

It hiked by 75 basis points in October and September and by 50 basis points in July, bringing rates out of negative territory for the first time since 2014.

“The Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target,” the ECB said in a statement.

… as did the Bank of England:

The Bank of England on Thursday raised interest rates by a widely expected 50 basis points (bps) to 3.50%, in its ninth straight increase – and its eighth this year.

The BoE, which is battling double-digit inflation that has unleashed a cost-of-living crisis that is pushing the economy deeper into recession, has raised rates by a combined 325 bps in 2022 alone to their highest since late 2008.

UK rates began rising in December 2021, making the BoE the first of the world’s major central banks to kick off a monetary policy-tightening cycle.
…
Furthermore, a breakdown of votes by Monetary Policy Committee members showed policymakers divided.

Some voted for an outsized 75-bps rise, while others said now was the time to stop tightening monetary policy altogether.

… and equities tanked:

The S&P 500 fell 2.5%, with more than 90% of stocks in the benchmark index closing in the red. The Dow Jones Industrial Average was down 2.2% and the Nasdaq composite lost 3.2%. The broad slide erased all the weekly gains for the major U.S. indexes.

European stocks fell sharply, with Germany’s DAX dropping 3.3%. The Canadian benchmark index fell 1.5% to a five-week low.

The wave of selling came as central banks in Europe raised interest rates a day after the U.S. Federal Reserve hiked its key rate again, emphasizing that interest rates will need to go higher than previously expected in order to tame inflation.

This entry was posted on Thursday, December 15th, 2022 at 9:33 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.