With the fifth rate hike in a row, the monetary authorities of the euro are bracing themselves against persistently high inflation. The European Central Bank (ECB) raises the policy rate in the euro area again by 0.50 percentage point to 3.0 percent. This was decided by the central bank council in Frankfurt on Thursday. A further rate hike has already been announced for the next monetary policy meeting on 16 March.
ECB President Christine Lagarde had already mapped out this course in December: “We have a long way to go.” In January, Lagarde reaffirmed the central bank’s determination that interest rates “need to rise significantly and steadily” to keep inflation under control, Lagarde said.
High inflation lowers returns
The so-called deposit rate, which credit institutions receive when they park money at the ECB, rises to 2.50 percent after the decision of the ECB council on Thursday. Since the ECB changed course in July, savers have benefited from rising interest rates on overnight and term deposits. High inflation, however, depresses returns.
Price increase still far from target
The ECB aims for price stability in the euro area in the medium term with an inflation rate of two percent. This goal has been months away. Although inflation slowed again in January, consumer prices in the currency area were still 8.5 percent higher than in the same month last year, according to an initial estimate by Eurostat.
Inflation in Germany was 8.6 percent in December. Above all, high energy and food prices fuel inflation.
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.