ECB raises rates significantly, bank deposits to 1.5%

The European Central Bank pounced on another extraordinary rate hike aimed at curbing uncontrollable inflation, raising interest rates at the fastest pace in euro currency history on Thursday, showing how far banks will go against the looming threat of recession. It raised questions about what we were going to do about the economy.

The 25-member board raised the interest rate benchmark by three-quarters of a percentage point (0.75%) at its meeting in Frankfurt. Cope with rising consumer prices.

The base interest rate will be 2%, and it will be raised three times in a row to a total of 2%.

The interest rate on bank deposits has increased from 0.75% previously to 1.5%.

“Inflation is still too high and will remain above our target for a long time,” ECB President Christine Lagarde told reporters after the meeting. Bank policymakers “expect to raise interest rates further to ensure that inflation picks up in a timely manner.”

She pointed to continued rate hikes despite the bank’s expectation of “further weakness for the remainder of this year and early next year.”

The ECB has now raised interest rates in 19 eurozone countries by a full 2 ​​percentage points in just three months. This is a distance that took him 18 months to cover in the last extended hiking phase in 2005-2007 and 17 months in 1999-2000.

Central banks around the world are rapidly raising interest rates, pushing up the cost of credit for businesses and consumers. Their goal is a steep rise accelerated by high energy prices related to Russia’s war in Ukraine, supply bottlenecks after the pandemic, and a recovery in demand for goods and services after Covid-19 restrictions are eased. The Fed hiked rates by 3/4 percentage points for the third time in a row last month.

A 0.5 percentage point hike is usually the norm for central banks. But that was before inflation surged to 9.9% in the eurozone as higher prices for natural gas and electricity after Russia cut off most of its natural gas supply during the war in Ukraine.

Some analysts forecast a 0.5 percentage point rise at the final rate-setting meeting of the year in December, and believe banks may halt after that.

The ECB expects inflation to drop to 2.3% by the end of 2024.

Higher interest rates make it more costly to borrow, spend, and invest, and reduce demand for commodities, thus keeping inflation in check.

But the concerted effort to raise rates has also raised concerns about the impact on economic growth and stock and bond markets.

The ECB’s short-term lending benchmark to banks is now at 2%, the level seen in March 2009.

Source: AP, Greek media