He European Central Bank (ECB) raised its rates on Thursday by 0.25 percentage points, a smaller increase than the previous ones, although it warned that there are still “a long way to go” to control inflation in the eurozone.
“Based on the information available today, we still have a long way to go and there will be no pause.”, declared the president of the ECB, Christine Lagarde, after the announcement of that increase, the seventh in a row.
After this increase, which coincides with the forecasts of most analysts, interest rates in the Eurozone will be in a range of 3.25% to 4%, their highest level since October 2008.
Raising rates is the ECB’s main tool to fight inflation in the euro block, made up of 20 of the 27 European Union (EU) countries.
Year-on-year inflation in the euro area picked up in April to 7%, after six months of decline, according to data released on Tuesday by the European Statistics Agency (Eurostat).
The data is well above the ECB’s target of 2% inflation in the medium term.
“The inflation outlook remains too high and has been for too long”, warned the institution based in Frankfurt (Germany) in a statement.
like the fed
The tightening of monetary policy seeks to cool investment and credit, to curb demand and thus contain prices.
The ECB’s decision is in the same line as that of the United States Federal Reserve (Fed), which raised its main official interest rate by a fourth percentage point on Wednesday, in its tenth consecutive increase since March 2022.
The increase was also less than on previous occasions.
The members of the Governing Council of the ECB explained that, despite lower inflation in recent months, “underlying pressures on prices remain strong.”
Analysts rule out a significant slowdown in inflation in the near term, given the wage increases that have been recorded in various sectors, such as in Germany for public service employees.
“It has not finished”
In the banking sector, conditions for access to credit are tightening as never before since the sovereign debt crisis of 2011.
The latest data from the ECB reveal that this situation is already affecting the demand for credit.
“All these effects will continue to spread in the economy gradually, it is not over”, ECB chief economist Philip Lane predicted at the end of April.
The weak growth of the Gross Domestic Product (GDP) in the euro area, at 0.1% year-on-year in the first quarter, attests to the slowdown desired by the ECB, but also to the vulnerability of the euro area economy.
Economists expect the deposit facility rate to peak at 3.50% to 3.75% during the summer.
This rate determines the interest that credit institutions receive for their overnight deposits at the central bank.
Once that level is reached, “rates should stabilize for a relatively long period”, predicts Maxime Mura, manager at Swiss Life Asset Managers.
Source: AFP
Source: Gestion
Ricardo is a renowned author and journalist, known for his exceptional writing on top-news stories. He currently works as a writer at the 247 News Agency, where he is known for his ability to deliver breaking news and insightful analysis on the most pressing issues of the day.
