The ECB eased interest rate growth, up to 3.75 percent

There will be no truce until inflation. European Central Bank (ECB) announced this Thursday a a new rise in interest rates. The seventh in a row since the beginning of the increase in the price of money in July 2022 with the aim of bridging prices.

The reference rate will rise, yes, less than expected: a quarter of a point, as announced by the president of the organization, christine lagarde, stands at 3.75%at levels not seen since October 2008.

Measure further limit lending to companies and households Europeans who will have to pay more to borrow, either for consumption or to buy a house. “In the first quarter of 2023, the criteria for granting loans and, in particular, the general conditions applicable to new loans, would be tightened entirely for the fourth consecutive quarter,” the Bank of Spain admitted this week.

This gradual tightening of financing conditions was accompanied, in parallel, by a recovery in euriborthe index to which the majority mortgages in the land. The paper is already at 3.843%, close to the 4% threshold that analysts took for granted before the banking turmoil caused by the Credit Suisse crisis. In practice, this increase will mean that household mortgage repayments will rise again for those who have to do their annual review in the coming months.

Despite market doubts about the ECB’s strategy to accelerate hikes amid banking and economic uncertainty, and the moderation in this latest decision, the Lagarde-led organization is not about to give up its efforts to lift inflation. to the target of 2%. And, according to the latest Eurostat data, euro zone it is still far from the goal.

Seven increases to reduce inflation from 8.9 to 7 percent

After five consecutive months of cooling, inflation rebounded again last April to 7%. However, the core amount – excluding energy and fresh produce – fell by a tenth, from 5.7 to 5.6%, giving ammunition to some central bank governors who have been demanding for months that Frankfurt end the accelerator to avoid choking off credit to the real economy.

The agency began raising interest rates in July 2022 and, after six consecutive hikes, barely managed to cool inflation by 1.9 points. Why is it so hard for him to control it?

As the ECB itself pointed out in March, there are a number of factors that make price moderation difficult. Especially, high energy prices 2022 continue to pervade all production chains, due to the growth of costs that companies had to take on and their impact on the final price for customers. However, body experts also point to a high profit margins that sectors like food take into account. Another factor that raises prices has to do with salary increases.

The euro keeps the dollar at bay

Another reason why the ECB decided to raise interest rates again relates to the need to maintain a euro strong in the market. In mid-2022, the currency lost parity with the dollar. In other words: one euro was not enough to replace a dollar. And this could threaten the economy of the major euro powers, which need dollars to buy energy products such as gas. A weak euro could cause energy bills to rise in the eurozone as imports become more expensive.

As the exchange rate rose, the euro strengthened and is now trading at $1.11, keeping the US currency at bay.

That’s why, as happened on Wednesday, every time United States Federal Reserve decides to increase the price of money, the ECB is forced to follow the same path. The US body set the reference rate at 5.25%, after raising it by a quarter of a point, with the same intensity that the ECB applied this Thursday.