Despite the recent turbulence in the banking sector, the European Central Bank (ECB) raised its policy rate again on Thursday – by 0.5 percentage point to 3.5 percent. It is the sixth rate hike in a row. In this way, the currency watchdogs want to counter the persistently high inflation and inflation in the euro area. Rising interest rates have various consequences for bank customers.
The deposit rate, which leads the financial markets and which financial institutions receive from the central bank for parking excess funds, will be 3.00 percent in the future.
“Increased uncertainty”
The monetary authorities reiterated their determination to ensure that inflation returns to the medium-term target of 2% in a timely manner. The heightened uncertainty once again demonstrates the importance of a data-driven approach to the Governing Council’s interest rate decisions.
While the rise is essentially good news for many bank customers, borrowers are lagging behind.
The good news: There are higher interest rates on savings or term accounts.
The sobering news: Given the high inflation, times remain difficult for savers. If you need a real estate property, an overdraft, a car or an installment loan, you should consider higher interest rates. In the coming weeks and months, interest rates on all kinds of loans could rise.
Fear of new banking crisis
The fear of a new banking crisis caused severe turbulence on the stock markets in recent days. First, the collapse of the Silicon Valley Bank (SVB) in the US had dragged the banking sector down on the stock exchanges in the United States and Europe. Subsequently, the crisis of confidence at Credit Suisse, Switzerland’s second largest bank, rekindled the unrest in the financial markets. Credit Suisse is now receiving tailored help from the Swiss National Bank (SNB). The institute wants to take out loans of up to CHF 50 billion from the SNB.
ECB: Credibility is at stake
This was therefore not an easy interest rate decision for the European Central Bank, because the euro watchdogs also have to keep an eye on the stability of the financial system. On the other hand, the head of the central bank, Lagarde, and other currency watchdogs have recently repeatedly reaffirmed their intention to push another sharp rate hike of 0.50 percentage point in the fight against high inflation. Her credibility was also at stake.
Because inflation in the euro area has slowed somewhat recently, it fell from 8.6 percent in January to 8.5 percent in February. But the central bank’s inflation target of 2.0 percent is still a long way off. In addition, core interest rates, excluding volatile energy and food prices, rose to 5.6 percent in February from 5.3 percent in January. This worries monetary watchdogs, as it could indicate that the sharp rise in prices may last longer than previously thought.
Source: Krone
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.
