Monthly Cash Review – EUR

Key arguments

• The ECB raised all three policy rates by 25bp on September 10, taking the deposit rate to 2.50%, and signalled inflation may stay above target longer.
• Stronger growth (composite PMI 53.1) gave the ECB more room to lean against inflation persistence despite core inflation easing to 2.4%.
• Euro money markets priced continued policy risk: €STR, Euribor and swap rates rose, with 3-month Euribor reaching 2.62%.
• Sovereign yields rose sharply (2-year Bund +35bp to 3.26%) and French OAT-Bund spreads widened to ~111bp, raising the cost of duration.

Corresponding source evidence

1. On September 10, the Governing Council unanimously raised all three policy rates by 25 basis points, taking the deposit facility rate to 2.50%, the main refinancing rate to 2.65% and the marginal lending rate to 2.90%, effective September 16.
2. The increase itself was fully expected; the more important message was that inflation was likely to remain above target for longer and that stronger growth gave policymakers less reason to tolerate that risk.
3. The ECB remains focused on the inflation outlook, underlying inflation and monetary-policy transmission, but it is placing greater weight on the duration and propagation of the energy shock.