The European Central Bank raised the interest rate to 4.5 percent, its all-time high

View of the European Central Bank building in Frankfurt (Sebastian Gollnow/Dpa) (Sebastian Gollnow/Dpa/)

He European Central Bank (ECB) decided this Thursday to raise its interest rates by tenth consecutive timeby a quarter of a percentage point, to 4.5%, to curb inflation in the euro area and despite the stagnation of the economy.

The Governing Council of the ECB has decided to raise the three official ECB interest rates in 25 basis pointsthat is, a quarter percentage pointafter reaching the conclusion that inflation will be higher than expected.

“Inflation continues to decline, but is expected to remain too high for too long,” the ad says.

This raises the bank deposit facility reference ratewhich is paid to commercial banks when they deposit money in the central bank overnight, at 4% from 3.75%an all-time high.

The main type of ECB refinancing, which provides most of the liquidity to the banking systemhas risen from 4.25% to 4.5%.

The marginal credit facilitywhich is charged when banks borrow from the ECB, has risen to 4.75%.

The ECB considers that its interest rates have reached levels that, maintained for a sufficiently long period, cThey will contribute substantially to the prompt return of inflation to the target.

Furthermore, the ECB says that will make the next decisions about the price of money depending on the economic data, to determine the appropriate level of restriction and its duration.

Upward revision of inflation forecasts

The interest rate hike agreed today is based on the upward revision of inflation forecasts for this year and for 2024.

The new macroeconomic projections prepared by the ECB experts for the euro area in September foresee a average inflation of 5.6% in 2023 (compared to the 5.4% forecast last June), 3.2% in 2024 (3%) and 2.1% in 2025 (2.2%).

ECB President Christine Lagarde (Boris Roessler/Dpa)
ECB President Christine Lagarde (Boris Roessler/Dpa) (Boris Roessler/Dpa/)

This represents an upward revision for 2023 and 2024 and a downward revision for 2025.adds the monetary entity when explaining why it has raised its interest rates again and has not paused.

The upward revision for 2023 and 2024 mainly reflects a rise in energy prices.

Besides, core inflation remains strongdespite the fact that most indicators have begun to moderate.

ECB experts have revised the projected path of inflation excluding energy and food slightly downwards, to an average of 5.1% in 2023, 2.9% in 2024 and 2.2% in 2025.

Negative growth forecasts

The ECB observes that the previous increases in interest rates are transmitted strongly and that Financing conditions have tightened again and are increasingly slowing down demandwhich is an important factor for inflation to return to target.

Given the impact of rising interest rates on domestic demand and the weakening of international trade, ECB experts have significantly lowered its economic growth projections.

They now expect the eurozone economy to grow by 0.7% in 2023 (0.9% forecast in June), 1.0% in 2024 (1.5%) and 1.5% in 2025 ( 1.6%).

(With information from EFE)