Despite growing economic concerns, the euro watchdogs are not giving in to calls for an interest rate cut for the time being. The policy interest rate at which banks in the euro area can obtain fresh money from the European Central Bank (ECB) will initially remain at 4.5 percent. The ECB Council decided this on Thursday during its first meeting of the new year in Frankfurt.
According to the decision of the ECB Council on Thursday, the deposit interest rate that banks receive for parked funds will remain at 4.0 percent. This is the highest level since the establishment of Monetary Union in 1999.
A higher interest rate makes loans more expensive
In July 2022, the ECB ended the years of zero and negative interest rates to bring high inflation under control. The central bank raised interest rates ten times in a row. Higher interest rates make loans more expensive, which can slow demand and counteract high inflation. However, more expensive loans are also a burden on the economy, because investments financed with loans become more expensive.
The fact that inflation has been on a downward trend recently gives the monetary authorities room to ease monetary policy again. The weakening euro area economy and Europe’s largest economy, Germany, could benefit from interest rate cuts.
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.
