(Kitco News) - The gold market is not seeing much reaction as the European Central Bank raises interest rates by another 75 basis points and signals that it will continue to tighten its monetary policy through year-end.
According to economists, the across-the-board rise in interest rates was expected. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2.00%, 2.25% and 1.50% respectively.
"The Governing Council took today's decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target. The Governing Council will base the future policy rate path on the evolving outlook for inflation and the economy, following its meeting-by-meeting approach," the ECB said in its monetary policy decision.
The gold market is seeing some modest selling pressure as it holds solid support above $1,650 an ounce. December gold futures last traded at $1,665.20 an ounce, down 0.27% on the day.
Against the euro, the gold market is doing much better, with prices seeing modest gains. Spot gold against the euro last traded at €1,656.05 an ounce, up 0.31% on the day.
The ECB warned consumers that inflation is "far too high," as supply bottlenecks, soaring food and energy costs and the post-pandemic recovery have led to broad-based price increases.
"The Governing Council's monetary policy is aimed at reducing support for demand and guarding against the risk of a persistent upward shift in inflation expectations," the ECB said.
The ECB also said that it will adjust the terms and conditions of its third series of targeted longer-term refinancing operations (TLTRO III). The central bank will set the remuneration of minimum reserves at the ECB deposit facility rate.
"Today, in view of the unexpected and extraordinary rise in inflation, it needs to be recalibrated to ensure that it is consistent with the broader monetary policy normalisation process and to reinforce the transmission of policy rate increases to bank lending conditions," the ECB said in its statement.
Jack Allen-Reynolds, senior Europe economist at Capital Economics, said that he is expecting the ECB to raise interest rates more aggressively through the early mart of 2023.
“We do know that a number currently favor raising rates above their estimate of neutral, which is around 2%. We think the deposit rate will reach 3% early next year, sooner than is priced into markets,” he said.
