The ECB decided to raise its policy rate to 2.50%, effective 16 September. The BOJ is also expected to move into a further rate-hike phase.
At a meeting of the ECB Governing Council held in Berlin on 10 September, the ECB decided to raise its central bank deposit rate by 0.25 percentage points to 2.50%, effective 16 September. This marks the ECB’s second rate hike since June.
The move was driven by surging oil prices and mounting inflationary pressure associated with the prolonged situation in the Middle East. Eurozone CPI rose 3.3% year on year in August, while energy prices remained elevated, up 14.3% year on year.
At a press conference, President Lagarde said inflation was likely to persist and stated that the ECB would maintain its framework for navigating uncertainty through further rate hikes. Attention is now focused on the decisions to be made at upcoming meetings from October onward.
The BOJ is reportedly expected to decide at its 17–18 September meeting to raise its policy rate from the current level of around 1.0% to around 1.25%, prompting markets to focus on a narrowing of the Japan–US interest rate differential amid developments in Japan and abroad. Market views are spreading that further rate hikes will be required to complete monetary normalization.
In the foreign exchange market, yen buying accelerated, with the yen at times rising to the upper ¥152 range against the US dollar on 8 September, as monetary policy developments in Europe, the United States and Japan continued to ripple through markets.