This raises the policy rate at which commercial banks can borrow fresh money from the ECB to 2.0 percent, the central bank in Frankfurt announced. With its interest rate hikes, the ECB wants to make loans more expensive to curb demand and thus combat high inflation. The Board of Directors assumes that further interest rate hikes will follow.
ECB President Christine Lagarde recently reaffirmed the central bank’s determination to fight high inflation. “We will do what we have to do. That means that interest rates will have to be raised in the coming meetings,” Lagarde said. If the ECB does not fulfill its mandate to ensure price stability, “it would do much more damage to the economy”.
Today’s decision is the third rate hike in a row. After much hesitation, the Governing Council of the ECB raised euro area interest rates for the first time in 11 years at its meeting on 21 July. The second increase followed on September 8 – the first in central bank history by 0.75 percentage point.
The ECB had long interpreted the high inflation as temporary and only started raising interest rates later than, for example, the US Federal Reserve.
The so-called deposit rate, which credit institutions receive when they park money at the ECB, will rise to 1.50 percent after Thursday’s decision. To the delight of millions of savers, the first rate hike in July ended the negative rate phase.
Since then, commercial banks no longer have to pay 0.5 percent interest on part of the money they park with the central bank. As a result, most institutions have abolished negative interest rates for retail customers and are groping their way into interest rates on savings.
Euro area inflation rose to a record high in September, driven by high energy and food prices. Compared to the same month last year, consumer prices rose by 9.9 percent. It was the highest value since the introduction of the euro as book money in 1999.
However, there are concerns that the economy, which is already suffering from supply bottlenecks and the impact of, for example, the war in Ukraine on the energy market, will be held back by the normalization of monetary policy, which has been ultra-easy for years, too fast. The ECB therefore reserves the right to help heavily indebted euro countries by buying bonds. (SDA)