For the First Time in 11 years, the ECB is starting to Raise Interest Rates

EU | June 9, 2022, Thursday // 16:13|  views

The European Central Bank based in Frankfurt, Germany @Flickr

The European Central Bank confirmed on Thursday that it would end a long-running scheme to pour billions of euros into the Eurozone economy on July 1st by buying bonds and signaled a series of interest rate hikes as early as next month as it fights persistently high inflation.

With prices rising to a record high of 8.1% in the Eurozone last month and rising rapidly, the ECB is repealing stimulus measures it has implemented for most of the last decade.

This aims to stop the rapid rise in prices from spilling over into the wider economy – i.e. far beyond fuels and food - and to be "concreted" as a process through a hard-to-break spiral of ever-higher wages and prices.

Following the promised move, the ECB said it would end its asset purchase program, its main stimulus after the Eurozone debt crisis, and said it would raise interest rates by 25 basis points in July, then change interest rates again in September, probably with a bigger difference.

"The Governing Council intends to raise the ECB's key interest rates by 25 basis points at its monetary policy meeting in July," the ECB said in a special statement. "The Governing Council expects to raise the ECB's key interest rates again in September," it said. "If the medium-term outlook for inflation is maintained or worsens, a larger increase will be appropriate for the September meeting."

The ECB's deposit rate is now minus 0.5% and ECB Governor Christine Lagarde said its level could return to zero or slightly higher by the end of the third quarter.

However, markets expect even more aggressive action - 135 basis points increase by the end of this year or increase in each meeting from July onwards, with some of the adjustments exceeding 25 basis points.

The bank has not raised interest rates for 11 years, and the interest rate on deposits has been in negative territory since 2014.

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Tags: ECB, rates, interest, inflation, Eurozone


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