ECB Exits Negative Interest Rate Policy With 50 Basis Point Hike; Bitcoin Steady

The European Central Bank's first rate hike since 2011 comes four months after the Fed kicked off its tightening cycle, sending risk assets lower.

AccessTimeIconJul 21, 2022 at 12:51 p.m. UTC
Updated Jul 21, 2022 at 3:25 p.m. UTC

Omkar Godbole was a senior reporter on CoinDesk's Markets team.

The European Central Bank (ECB) on Thursday raised borrowing costs for the first time in 11 years, exiting the six-year 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. The euro, the common currency of 19 out of 27 European Union nations, jumped 0.7% relative to the U.S. dollar from $1.0198 to $1.0250.


Read more about

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Omkar Godbole was a senior reporter on CoinDesk's Markets team.

CoinDesk - Unknown

Omkar Godbole was a senior reporter on CoinDesk's Markets team.

Investing in the Future of the Digital Economy
October 18-19 | Spring Studio, NYC