By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, October 27, 2022
The European Central Bank (ECB) raised the key interest rate by 75 basis points to 2% per annum. This is the third rate hike announced by the Frankfurt institution since July.
Last time, the key rate was increased by 75 points on September 8.
“The Governing Council of the ECB has decided and expects a further increase in interest rates to ensure the timely return of inflation to the medium-term target level of 2%,” announced the central bank on its website.
The base interest rate has been increased to 2%, the deposit rate is now 1.50%, and the ECB’s short-term loans are 2.25%, a level it had not reached since 2009.
The regulator notes that inflation remains too high and will remain above the target for a long period. In September, annual inflation in the eurozone hit 9.9%, a record, after 9.1% in August.
Christine Lagarde indicated that this increase will be followed by others. The objective: to increase the cost of borrowing to curb demand. After ending eleven years of accommodative monetary policies, the Frankfurt-based monetary institution is determined to follow its “normalization path“.
The European Central Bank has also decided to tighten conditions on the latest wave of giant loans to banks at advantageous rates, which are no longer in line with the phase of high inflation.
“Given the unexpected and exceptional acceleration of inflation,” the lending facility called TLTRO must be “recalibrated,” according to an ECB statement. Given the rise in key rates, these loans now offer attractive gains on banks’ excess liquidity. The rate applied to these loans will therefore be adjusted and banks will be able to repay them on early dates.
On September 8, the European Central Bank for the first time raised the base rate by 75 points – up to 1.25% per annum. On July 21, the ECB raised the rate by 50 basis points to 0.5% for the first time since 2011. The regulator then explained that the change in the rate is associated with a reassessment of inflation risks.
On September 28, Christine Lagarde, the Chairman of the European Central Bank (ECB) said that the institution must continue to raise interest rates to stem inflation, even if it results in slowing growth.
“We need to bring inflation down to 2% in the medium term and we will do what we have to do, which is to continue to raise interest rates in the next meetings,” she told a conference in Frankfurt. “If we didn’t meet (our mandate), it would penalize the economy even more.”
On March 30, Christine Lagarde said “We know that we are going to see higher inflation this year, there is no doubt about that,”, during a conference organized by the central bank of Cyprus.
A falling euro currency, amid high inflation, a coming recession, a bear market in stock exchanges and the recent victory of national-convervative parties in Italy, could provoke the end of the euro zone in 2023.
Read also : How to invest in gold
Europe is in a very difficult situation now. With raising interest rates, the cost of debt will increase, putting more pressure on workers and small and medium companies. The housing market can be the first to plunge in coming months in the euro zone.
Gold prices were navigating between $ 1,654 and $ 1,670 per troy ounce today, gaining near 2.12% over the past 30 days. Silver prices were negotiated between $ 19.27 and $ 19.75 per ounce today.
The exchange rate of euro/dollar is today : 1 euro for 1 dollar.
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© Copyright 2022 – Swann Collins, investor, writer and consultant in international affairs.