In response to a comparable action by the US Federal Reserve, the European Central Bank announced a modest interest rate increase. The inflation prognosis, it said, remained "too high for too long."
In an effort to control inflation, the European Central Bank (ECB) announced a 0.25% increase on Thursday, raising the eurozone’s benchmark interest rate to 3.75%.
Following three opportunities for the ECB to raise the key interest rate by 0.5%, the most recent announcement slows the rate-hike pace.
What was said by the ECB?
The ECB’s announcement follows a similar one made on Wednesday by the US Federal Reserve, which likewise increased borrowing prices by 0.25% while also making a hint that it would soon stop rising interest rates. Although the ECB is not anticipated to stop raising interest rates, it did not explicitly promise to do so in this statement, instead stating that it would take a “data-dependent approach.”
“The inflation outlook continues to be too high for too long,” the central bank declared in a statement. Year-over-year inflation in the eurozone is expected to be 7.0% in April, according to preliminary EU data. This would be a tiny increase from March’s number of 6.9% and considerably above the ECB’s target range of around 2%
What are the current rates?
All three of the ECB’s benchmark interest rates were increased by 0.25%. Its deposit rate, which is the interest provided to commercial banks that overnight deposit surplus cash at the ECB, increased to 3.25%.
The most significant of the three, the interest rate on “main refinancing operations” (the rates the ECB charges commercial lenders for borrowing money for one week) increased to 3.75%. Additionally, the ECB’s marginal lending facility’s interest rates, which it charges commercial lenders for overnight capital loans, increased to 4%. Since 2008, when the financial crisis caused western central banks to drop interest rates to historically low levels close to zero, all of these levels have been records. What are the current rates?
Years of attempting to cause mild inflation, but currently attempting to contain it
Since then, the rates have remained stable at or close to zero while economists attempted to create a small inflation of about 2%, especially in the eurozone. However, by 2022, the COVID pandemic’s aftereffects and Russia’s invasion of Ukraine had begun to drive inflation well past that target, forcing central banks to begin raising interest rates. Because it deters borrowing, which in turn discourages spending, raising interest rates is viewed as a tool to fight inflation.
Following Russia’s invasion of Ukraine last year and after Moscow started reducing gas deliveries to Europe, already-rising goods prices started rising even more sharply in the 20 member states of the eurozone. As a result, prices for essential goods like food and fuel increased in Europe.
In conclusion, as we continue to monitor the interest rates, it remains to be seen what the potential impact could be for Canada and the rest of the world. We will provide further updates as new information becomes available regarding the key rate increase by the European Central Bank (ECB)
