Many borrowers have been anxiously awaiting the next interest rate decision from the European Central Bank (ECB). On Thursday they decided: Although the economic situation in Europe continues to deteriorate, interest rates will rise again – by 0.25 percentage points to 4.5 percent.
Given the poor economic situation in Europe – in some cases there is even a threat of recession – there have been increasing calls recently to suspend a possible interest rate increase or even to lower the policy rate again in the future. The ECB made another point on Thursday: the key interest rate in the euro zone will be increased for the tenth time in a row. As in July, the step is a quarter of a percentage point.
In this way, the monetary authorities want to tackle the still high inflation; on average in the eurozone this is still more than five percent and therefore far from the ECB target of two percent. As a direct result of the interest rate increase, financing is now becoming more expensive again, which in turn puts a brake on the willingness to invest.
Highest level since the start of the monetary union
The main deposit rate on the financial market, which financial institutions receive from the central bank for parking excess funds, rises from 3.75 to 4.00 percent. This is the highest level since the start of the monetary union in 1999. “In determining the appropriate level and duration of the restrictive level, the Governing Council of the ECB will continue to pursue a data-driven approach,” the monetary authorities said.
Economy probably weaker than expected
According to the ECB’s latest forecast, the euro area economy will grow by 0.7 percent this year, slightly weaker than the 0.9 percent predicted in June. Next year, gross domestic product is expected to rise by 1.0 (June forecast: 1.5) percent. For 2025, the ECB expects economic output in the currency area to grow by 1.5 (1.6) percent.
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.
