ECB raises interest rates for the first time in more than 10 years

The European Central Bank announced on Thursday that it intends to raise interest rates in the euro area for the first time in 11 years as a tool to combat rising inflation.

Expect to come in July and pay a little more for the European Union loan. The European Central Bank (ECB) says it plans to raise interest rates by 0.25% next month and an additional increase later this year as a way to counter the significant inflation that is currently being experienced in the euro area.Banks also announced that they will end their bond purchase stimulus program on the July.

The latest estimate is that inflation is 8.1%, well above the ECB’s target, accelerating its rise for the first time in more than a decade. He added that the reason cited was the sharp rise in energy and food prices, and inflationary pressures “expanded and intensified, and prices for many commodities and services rose significantly.”

“High inflation is a big challenge for all of us. The (ECB) Board will ensure that inflation returns to its 2% target in the medium term,” the ECB continued.

“It’s not just a step, it’s a journey,” added ECB President Christine Lagarde.

The ECB’s main interest rate is currently -0.50% and could return to above zero by the end of September, the bank said. The last time we raised interest rates in the euro area was in 2011.

As a result, banks raised their annual inflation rate estimates to 6.8% this year, then fell to 3.5% in 2023 and 2.1% in 2024. We also lowered our growth forecast for the euro area from 3.7% to 2.8%. 2.8% to 2.1% in 2022 and 2023.

Several other central banks are already raising interest rates because they are trying to slow inflation. For example, in the United States, the Federal Reserve raised interest rates twice this year, and the Bank of England raised interest rates in the UK to 1%, the highest in 13 years.

Energy prices are up 40% from last year and food is up 7.5%. This has been criticized mainly due to the effects of the war in Ukraine.

The dire situation is expected to continue at least until next year and will be exacerbated.

Seema Shah, Principal Chief Strategist, said: Global investors BBC..

Photo by Immo Wegmann of Unsplash

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