Crypto Market Reacts Positively as ECB Raises Interest Rate by 25 Bps

• The price of bitcoin breached the $29k mark, while the price of ether crossed over $1900.
• The European Central Bank (ECB) hopes to get policy rates close to their 2% objective.

Key interest rates were increased by the European Central Bank (ECB) by 25 basis points (bps) at its May 4 meeting, signaling a moderating pace of policy tightening. In April, Euro Area inflation hit 7%, while the underlying rate has remained at a record high of 5.6%.

Following a similar rate hike by the U.S. Federal Reserve of 25 basis points, the cryptocurrency market responded positively to the ECB’s move. The price of bitcoin breached the $29k mark, while the price of ether crossed over $1900. When central banks signal that they won’t be raising interest rates aggressively, traders are inclined to take optimistic positions.

The Governing Council of the European Central Bank has raised interest rates for three of its facilities—the main refinancing operations, the marginal lending facility, and the deposit facility—to 3.75%, 4.00%, and 3.25%, respectively.

Objective of Inflation Close to 2%

With inflation running high, the European Central Bank (ECB) hopes to get policy rates close to their 2% objective. For as long as it takes, the central bank intends to keep rates low. Also, beginning in July 2023, the Governing Council will no longer reinvest proceeds from the Eurosystem’s asset purchase program (APP).

Following the ECB’s interest rate hike, stock market indices went into the red, and the Euro declined slightly against the US dollar. There was a minor amount of pressure on the cryptocurrency market as the DXY index spiked from 101.11 to 101.57.

Still, optimism prevails as Bitcoin turned green. Christine Lagarde, president of the European Central Bank, has reaffirmed the institution’s commitment to reducing inflation. As before, the restriction’s intensity and duration will be determined by looking at available data.