Europe

Update: European central bank raises interest rates in July for the first time in 11 years



The European Central Bank raised rates for the first time in 11 years in July and then again in September to catch up with other central banks around the world by pivoting from pandemic economic support to curbing spikes on Thursday. Announced that it will do. inflation.

Two quarters after the 25-person monetary policy meeting in Amsterdam, where inflation has become a “major challenge” and these forces have “expanded and intensified” in 19 euro-using countries. There was a surprising announcement that the points would be raised. currency. In addition, the stimulus package will end next month.

The move highlights concerns about the level of annual consumer price inflation, which reached 8.1% in May. This is the highest since statistics started in 1997. The bank’s goal is 2%.

The ECB said, “A larger increment is appropriate for the September meeting.” If inflation outlook persists or worsens.

On May 4, the Federal Reserve Board halved its key rate, showing the prospect of such a significant rise. The Bank of England has approved four hikes since December.

The prospect of a rapid rise in central bank interest rates has shaken the stock market as higher interest rates increase the return of low-risk alternatives to equities. As Russia’s war in Ukraine shocks the global economy, raising interest rates in Europe is also complicated by weakening the outlook for economic growth.

Higher rates can make credit more expensive for businesses. However, according to a bank statement, the path of growth is “gradual but sustainable.”

The market is currently waiting for bank governor Christine Lagarde to hear more at a post-meeting press conference. The conference was held in Amsterdam as one of the extraordinary gatherings of banks away from their headquarters in Frankfurt, Germany.

“High inflation is a big challenge for all of us,” the bank said in a policy statement. “The Governance Council will ensure that inflation returns to its 2% target in the medium term.”

Higher rates are the usual tool for fighting inflation. By raising benchmarks, central banks can influence the amount of money financial institutions, businesses, consumers and governments have to pay to borrow the money they need. Therefore, higher rates help cool the overheating economy.

However, higher rates can also weigh on growth. It makes the ECB’s job a delicate balance between eradicating inflation and slowing economic activity.

The ECB on Thursday lowered its growth forecast for this year from 3.7% to 2.8%.

Inflation has been raised, with inflation averaging 6.8% this year, surpassing the March forecast of 5.1%, and the key forecast for 2024 has been raised from 1.9% to 2.1%. This is important because it shows that banks see inflation above their targets for several years.

The ECB’s move to attack inflation raises concerns about the impact of high interest rates on high-debt governments, especially Italy.

The rate hike ends the very low interest rate prolongation that began during the 2009 global financial crisis. The hike begins at record lows with zero lending rates to banks and minus 0.5% overnight deposits from banks.

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https://www.independent.com.mt/articles/2022-06-09/world-news/Europe-s-central-bank-to-hike-rates-in-July-first-time-in-11-years-6736243602 Update: European central bank raises interest rates in July for the first time in 11 years

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