The European Central Bank has raised interest rates by 0.25 percent. It is the eighth increase in a row since July 2022. The US Federal Reserve had taken a break after ten interest rate hikes in a row.
The European Central Bank has once again raised the key interest rate in the euro zone. The central interest rate at which commercial banks can borrow money from the ECB is now four percent. Banks use this so-called main refinancing rate as a basis for lending, for example for private construction loans
In view of the continued high inflation in the euro zone, the ECB’s decision was also expected. The ECB has an inflation target of around two percent in its sights. Although inflation in the euro zone had recently weakened further in May, it was still 6.1 percent year-on-year.
ECB interest rates have never risen so fast
With the new rate hike, the ECB has increased its key interest rates for the eighth time in a row since July 2022, and it is considered the fastest cycle of increases in its history.
The so-called deposit rate for banks that “park” their money with the ECB rose from 3.25 to 3.50 percent.
Demand for credit falls
Higher interest rates are seen as a means of counteracting inflation, since they curb demand and, with a time lag, also the rise in prices. At the same time, rising interest rates can hamper economic growth. A significant decline in the demand for credit from households and companies can already be observed.
In addition, the German economy has recorded a minus for two quarters in a row and has thus technically slipped into recession. The heavily indebted southern euro countries could face problems servicing their debts if interest rates continue to rise.
On Wednesday, the US Federal Reserve took a break after ten interest rate hikes in a row. For the first time since the start of its most recent rate hikes in March 2022, it left the base rate unchanged and is sticking to the interest rate range of between 5.0 and 5.25 percent. In the USA it had previously become known that the inflation rate fell to four percent in May compared to the same month last year.