The European Central Bank raised interest rates by half a percentage point to fight inflation

The building of the European Central Bank (ECB), in Frankfurt, Germany (Reuters) (WOLFGANG RATTAY /)

The European Central Bank (ECB) decided this Thursday raise interest rates by half a percentage pointuntil the 3%, fifth consecutive rise, after inflation in the euro area slowed down for three months in a row, and announced that it plans to increase rates by another half a percentage point in March.

After the meeting of the Governing Council, the ECB reported that it also increases the credit facility, which lends to banks overnight, by 50 basis points, up to 3.25%, and the deposit facility, to that remunerates excess reserves for one day, up to 2.50%.

In this way, the ECB’s interest rates are now situated in a range of between 2.5% and 3.25%, the highest since November 2008and the institution intends to continue raising them “substantially at a constant rate” although it will “evaluate” this policy in March, he said.

“In view of the pressures on core inflation, the Governing Council plans to raise interest rates by another 50 basis points at its next monetary policy meeting in March and will subsequently assess the future path of its monetary policy”, says the ECB in a statement.

The ECB considers that “maintaining interest rates at restrictive levels reduce inflation over time by moderating demandand will also serve as protection against the risk of a persistent upward shift in inflation expectations”.

The President of the European Central Bank (ECB), Christine Lagarde (Reuters)
The president of the European Central Bank (ECB), Christine Lagarde (Reuters) (WOLFGANG RATTAY /)

In any case, the ECB qualifies, “future decisions of the Governing Council on official interest rates will continue to depend on the data and follow an approach in which decisions will be adopted at each meeting.”

The year-on-year inflation in the euro area fell seven tenths in January, to 8.5%and chained three consecutive months of decline, which fuels the hope that the rise in prices in the euro area has peaked.

But the core, which discounts energy, food, tobacco and beverages, remained at 5.2%.

In addition, the euro area economy has held up well to the rise in the price of money since July of last year and has managed to dodge recession for the time being.

The ECB began in July of last year its fastest cycle of interest rate hikes since its creation in 1999, with four consecutive increases in six months of 250 basis points last year, to which is added the 50 basis point of today, to curb high inflation in the euro area, which approached 11% at times in 2022.

On Wednesday, the US Federal Reserve slowed the pace of its rate hikes, acknowledging that disinflation was underway, while reaffirming that borrowing costs still need to rise further.

The latest economic data from the eurozone paints a mixed picture.

Headline inflation has been declining rapidly since reaching a record 10.6% in October, but core prices, which exclude volatile items such as food and fuel, have risen steadily or rapidly.

The euro area recorded unexpected growth in the last three months of 2022, but this was largely due to an exceptionally mild winter and strong performance in Ireland.

Supporters of raising rates, such as Klaas Knot of the Netherlands, Peter Kazimir of Slovakia and Bostjan Vasle of Slovenia, have explicitly called for a 50 basis point hike in March as well. However, supporters of a more moderate rise, such as the Greek Yannis Stournaras and the Italian Fabio Panetta, have advocated that the ECB refrain from committing in March.

(With information from EFE and Reuters)

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