The European Central Bank (ECB) announced a 75 basis point increase in its key interest rates, a major step to tackle soaring inflation across the Eurozone. This decision reflects growing concerns about the persistent rise in consumer prices and the need to anchor inflation expectations.
The ECB’s Governing Council decided to raise the three key ECB interest rates by 75 basis points. The main refinancing operations rate will be increased to 1.25%, the marginal lending facility rate to 1.50%, and the deposit facility rate to 0.75%, all effective from September 14, 2023.
In a statement, the ECB emphasized that inflation remains far too high and is likely to stay above target for an extended period. The central bank expects to raise interest rates further, as future policy rate decisions will be data-dependent and follow a meeting-by-meeting approach.
The rate hike is expected to impact borrowing costs for consumers and businesses, potentially slowing down economic activity. However, the ECB believes that curbing inflation is crucial for long-term economic stability.
Key takeaways from the ECB’s announcement:
- Interest rates increased by 0.75%.
- Further rate hikes are expected.
- The ECB is committed to bringing inflation back to its 2% target.
The ECB’s move follows similar actions by other central banks around the world, including the US Federal Reserve, as policymakers grapple with the challenge of controlling inflation without triggering a recession.
