Inflation prompts ECB to act
For the first time since July 2011, the European Central Bank intends to raise interest rates in the euro area again. Critics still feel the central bank’s course is too hesitant given record inflation rates.
FRANKFURT/MAIN (DPA) – The euro area is facing an interest rate hike for the first time in eleven years. After years of overly lax monetary policy, the European Central Bank (ECB) intends to raise key interest rates again at its meeting today to curb high inflation. The central bank’s decisions will be announced in the afternoon, for the first time at 2:15 pm at the new time.
If the ECB’s Governing Council follows the path announced at its meeting in Frankfurt in June, the key interest rate will increase from zero percent initially to 0.25 percent, and the negative interest rate for commercial bank funds held in the ECB will be less than zero. Will happen. 0.5 percent halved to minus 0.25 percent. However, given the high level of inflation, a large rate hike of 50 basis points cannot be ruled out.
Critics allege that the ECB started changing interest rates too late. Inflation in the euro zone has been reaching record levels for months. So the pressure on currency holders to raise interest rates more explicitly is enormous.
Lagarde promises determination
If the inflation outlook does not improve, we will have enough information to act swiftly, ECB President Christine Lagarde said in late June. The process of normalizing monetary policy will continue in a firm and sustained manner. The ECB has already announced another rate hike for the meeting to be held on 8 September.
Consumer prices in the euro area in June were up 8.6 percent compared to the same month last year. For the whole of 2022, the EU Commission expects inflation in the currency sector of the 19 countries to average 7.6 percent. This would be well above the stable price level targeted by the ECB, with an all-time high and an annual inflation rate of 2 per cent. Higher inflation lowers the purchasing power of consumers because they can then spend less for one euro.
Inflation drivers have been driving energy and food prices up significantly for months. The war of Russian aggression in Ukraine further aggravated the situation. It is also slowing economic growth in Europe. If the ECB raises interest rates too quickly in this environment, it could become a burden, especially for heavily indebted countries in southern Europe. The ECB is therefore working on a new anti-crisis instrument that aims to ensure that monetary policy works as evenly as possible across the currency sector and prevent fragmentation.
dpa-infocom, dpa:220721-99-99241/3
