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The ECB is fighting inflation with higher interest rates. In Germany, the inflation rate in February was 8.7 percent, barely below its peak of 8.8 percent in October. In the euro zone, the inflation rate fell minimally to 8.5 percent in February. At the same time, inflation is spreading more and more throughout the economy, beyond the energy and food price shocks. In a new forecast, the ECB expects an average inflation rate of 5.3 percent for this year. In 2024 it will drop to 2.9.
“Inflation is projected to remain too high for too long,” wrote the ECB Governing Council. This concern outweighed the recent turmoil in the banking sector. The ECB wrote: “The Governing Council is closely monitoring the current market tensions and stands ready to react as necessary to maintain price and financial stability in the euro area.” The ECB called the euro area banking sector resilient. “In any case, the ECB has all the monetary policy tools at its disposal to provide liquidity support to the euro area financial system if necessary and to maintain the smooth transmission of monetary policy.”
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After the ECB, the US Federal Reserve will decide on key interest rates in the coming week. She had recently increased it by only 0.25 percentage points to 4.5 to 4.75 percent. The decision is considered open. The Fed had initially indicated that it would be able to raise interest rates again because of the high inflation. After the collapse of the Silicon Valley Bank (SVB), an interest rate pause is also considered possible.
The SVB was also under pressure from rising interest rates. She had invested her money primarily in US government bonds. Although they are safe, their prices fell as a result of the interest rate hikes. At the same time, the bank had to pay customers higher interest rates to keep them from withdrawing their money. This balancing act did not work. So far there have been no similar cases in Europe. The major Swiss bank Credit Suisse has been struggling with other problems for a long time.
At the same time, the ECB raised its forecast for economic growth in the euro zone to 1.0 percent this year. The ECB economists assume that growth in 2024 and 2025 will increase slightly to 1.6 percent. “It is supported by a robust labor market, rising confidence and a recovery in real incomes,” writes the ECB. At the same time, growth in 2024 and 2025 is lower than expected in the December ECB projection. The reason for this is the tightening of monetary policy.
read too
The European Central Bank (ECB) raised interest rates for the euro area again by 0.5 percentage points on Thursday.
In the fight against inflation, the ECB thus maintained the pace of its rate hikes. Recently, this was considered questionable due to the turbulence surrounding Silicon Valley Bank and Credit Suisse.
The interest rate at which banks can borrow money from the ECB is now 3.5 percent. The interest rate at which banks can invest money with the ECB rises to 3.0 percent.
In the fight against stubbornly high inflation, the European Central Bank (ECB) has again raised the key interest rate for the euro zone by 0.5 percentage points. The ECB thus maintained the pace of its interest rate hikes – despite the recent turbulence surrounding the Californian Silicon Valley Bank and the major Swiss bank Credit Suisse. Your decision the ECB announced on Thursday.
Since the interest rate turnaround in the summer of 2022, the ECB has now raised interest rates six times in a row. The interest rate at which banks can borrow money from the central bank rises to 3.5 percent. The deposit rate at which banks can invest money there is now 3.0 percent.
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The ECB is fighting inflation with higher interest rates. In Germany, the inflation rate in February was 8.7 percent, barely below its peak of 8.8 percent in October. In the euro zone, the inflation rate fell minimally to 8.5 percent in February. At the same time, inflation is spreading more and more throughout the economy, beyond the energy and food price shocks. In a new forecast, the ECB expects an average inflation rate of 5.3 percent for this year. In 2024 it will drop to 2.9.
“Inflation is projected to remain too high for too long,” wrote the ECB Governing Council. This concern outweighed the recent turmoil in the banking sector. The ECB wrote: “The Governing Council is closely monitoring the current market tensions and stands ready to react as necessary to maintain price and financial stability in the euro area.” The ECB called the euro area banking sector resilient. “In any case, the ECB has all the monetary policy tools at its disposal to provide liquidity support to the euro area financial system if necessary and to maintain the smooth transmission of monetary policy.”
read too
After the ECB, the US Federal Reserve will decide on key interest rates in the coming week. She had recently increased it by only 0.25 percentage points to 4.5 to 4.75 percent. The decision is considered open. The Fed had initially indicated that it would be able to raise interest rates again because of the high inflation. After the collapse of the Silicon Valley Bank (SVB), an interest rate pause is also considered possible.
The SVB was also under pressure from rising interest rates. She had invested her money primarily in US government bonds. Although they are safe, their prices fell as a result of the interest rate hikes. At the same time, the bank had to pay customers higher interest rates to keep them from withdrawing their money. This balancing act did not work. So far there have been no similar cases in Europe. The major Swiss bank Credit Suisse has been struggling with other problems for a long time.
At the same time, the ECB raised its forecast for economic growth in the euro zone to 1.0 percent this year. The ECB economists assume that growth in 2024 and 2025 will increase slightly to 1.6 percent. “It is supported by a robust labor market, rising confidence and a recovery in real incomes,” writes the ECB. At the same time, growth in 2024 and 2025 is lower than expected in the December ECB projection. The reason for this is the tightening of monetary policy.
read too