For the first time in 11 years, the European Central Bank has raised its key interest rate by 0.5 percentage point. Record inflation prompted a reconsideration. Some think it was too late.
With the increase in the key rate to 0.5% – reports krone.at – a long phase of cheap money is coming to an end. With its loose monetary policy, the ECB has made credit much cheaper, benefiting both consumers and governments. With the increase, the “negative interest rates” that banks had to pay for deposits with the central bank are also a thing of the past.
Given the high inflation, most central banks have already raised their interest rates, the Fed (US) already to 1.5 to 1.75%. The ECB is accused of having waited too long out of consideration for heavily indebted countries in the eurozone.
“Anti-crisis program” is also coming
That is why she is now coming up with an ‘anti-crisis program’, which countries like Italy can help with. If the financing costs get out of hand due to the high bond yields, the ECB steps in. This is a tightrope walk as critics accuse the central bank of “disguised state financing” for which it has no mandate. However, according to ECB President Christine Lagarde, this program has allowed key interest rates to be raised more than planned.
How does this affect inflation? As money becomes more expensive, it slows the demand for credit and thus growth. The theory goes that this leads to lower prices. However, the interest rate hike has no effect on “imported” inflation, as is the case with energy prices. The goal of price stability (at 2% inflation) is currently still a long way off.
Loans are already three times as expensive
The financial markets have already reacted in the run-up to the ECB meeting: some loans are already three times as expensive as six months ago, and for a fixed-interest loan you pay at least 2.5%. In some places you can now also get up to 0.75% for (daily due) savings deposits, and 1.25% for longer obligations. With inflation over 8%, this is still a big loss, but half of Austrians still prefer savings accounts. The euro rate again rose to well above $1.02.
Source: Krone
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
