The ECB’s first rate hike comes four months after the Fed kicked off its tightening cycle, sending risk assets lower.Read MoreFeedzy
The European Central Bank (ECB) on Thursday raised borrowing costs for the first time in 11 years, exiting the six-year-long era of the negative interest rate policy (NIRP).
The Frankfurt-based central bank raised the deposit facility rate or the main policy rate by 50 basis points (0.5 percentage point) to zero from -0.5%. The increase was greater than the 25 basis point increase that economists had predicted on average, and the ECB signaled “further normalization” ahead.
“Frontloading the exit from negative rates allows the ECB to make a transition to a meeting-by-meeting approach to rate decisions,” the central bank said, adding that the decision is based on the back’s updated assessment of inflation risks.
The ECB said it will launch a new bond-purchasing program to counter the risk of fragmentation of the economic union or disorderly movement in bond yields across the common currency area. Recently, bond markets in highly-indebted nations like Italy saw heightened volatility relative to German bonds, signaling potential fragmentation in the European Union.
The ECB’s rate hike comes four months after the U.S. Federal Reserve (Fed) kicked off its tightening cycle. Since then, the Fed has hiked rates by 150 basis points, putting asset markets under pressure.
The ECB’s exit from the NIRP is pivotal, since the unorthodox practice of setting borrowing costs below zero was considered by many as a sign of cracks in the traditional financial regime – a common theme among cryptocurrency analysts.
Bitcoin, the leading cryptocurrency by market value, has held steady around $22,700 since the ECB announced a bigger-than-expected rate hike at 12:15 UTC. Euro, the common currency of 19 out of 27 European Union nations, jumped 0.7% from $1.0198 to $1.0250.
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