BUSINESSEUROPE
ECB raises key interest rate to 3.75%
48 minutes ago48 minutes ago
The European Central Bank announced a smaller interest rate hike, following a similar move by the US Federal Reserve. However, it warned that the inflation outlook remained “too high for too long.”
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The European Central Bank (ECB) announced a 0.25% raise on Thursday, bringing the eurozone’s key interest rate to 3.75% in a bid to curb inflation.
The latest announcement slows the pace of rate hikes after the ECB had raised the key interest rate by 0.5% at its previous three opportunities.
What did the ECB say?
The ECB’s move follows a similar announcement by the US Federal Reserve on Wednesday, which also raised borrowing costs by 0.25% — and hinted that it could soon pause raising interest rates.
While the ECB is not expected to halt its cycle of interest rate hikes, the central bank did not include an explicit commitment to future hikes in its statement this time — instead saying it would take a “data-dependent approach.”
“The inflation outlook continues to be too high for too long,” the central bank said in a statement.
Where do the rates stand?
The ECB raised all three of its benchmark interest rates by 0.25%.
Its deposit rate, the interest paid to commercial banks depositing excess funds at the ECB on an overnight basis, rose to 3.25%.
The interest rate on “main refinancing operations” (the rates the ECB charges commercial lenders for borrowing money for one week, and the most important of the three) rose to 3.75%.
And the rates the ECB charges commercial lenders for overnight loans of capital — the marginal lending facility — rose to 4%.
These levels are all records since 2008, when western central banks slashed interest rates to unprecedented levels near zero amid the financial crisis.
Years trying to induce modest inflation, but now trying to control it
Since then, particularly in the eurozone, the rates had remained stagnant at or near 0 as economists tried to induce modest inflation of around 2%. By 2022, though, a combination of the aftereffects of the COVID pandemic and Russia’s invasion of Ukraine started pushing inflation well past that target, forcing central banks to start raising rates.
Increasing interest rates is seen as a tool to combat inflation because it discourages borrowing and therefore spending.
The price of goods began soaring in the eurozone’s 20 member states following Russia’s invasion of Ukraine last year, and after Moscow began slashing gas deliveries to Europe.
The ECB has been aiming for medium-term price stability at an inflation rate of 2% — but this target has been overshot for months.
msh/rs (AP, dpa, Reuters, AFP)
