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Inflation: ECB raises rates to their highest level in eleven years

  • Post category:Economy News
  • Reading time:5 mins read

Despite the risk of recession, the ECB decided on Thursday to raise its three key rates by 75 basis points. Objective: fight against inflation.

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Lhe ECB decided on Thursday to increase its three key interest rates by 75 basis points. So that the deposit facility rate goes from 0 to 0.75%. This rate, which remunerates the deposits made by commercial banks with the central bank, is the main key rate of the ECB. It had already been raised by 50 basis points on July 21, when the euro zone issuing institution had de facto ended its negative rate policy.

“The Governing Council plans to continue to raise interest rates in its forthcoming meetings in order to dampen demand and avoid the risk of a persistent upward slide in inflation expectations,” the statement said. ECB press release.

“Inflation remains much too high and should remain above the target (Editor’s note: 2%) for an extended period”, explains the ECB.

ECB economists have revised their inflation projections significantly upwards. The increase in consumer prices should average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024 in the euro zone.

This increase in key rates comes despite ever-increasing fears of seeing the economy slip into recession, while soaring energy prices are putting households and businesses alike in difficulty.

The ECB also notes that “after a rebound in the first half of 2022, recent data point to a substantial slowdown in economic growth in the euro zone”. Its economists also estimate that the economy “should observe a phase of stagnation at the end of the year and in the first quarter of 2023”.

However, the ECB estimates that activity should pick up again in the course of next year. According to ECB staff, the eurozone economy is expected to grow by 0.9% in 2023 and 1.9% in 2024, compared to 3.1% in 2022.