Tuesday, February 20

ECB Raises Interest Rates Less Hard in the Fight Against Inflation

The European Central Bank (ECB) has raised interest rates again in the fight against high inflation. However, that went less fast; this time, a quarter of a percentage point was added compared to half a percentage point last time.

Interest rates are now back at the level of 2008, at the beginning of the financial crisis.

Central bank policymakers continue to look to macroeconomic data for subsequent interest rate decisions. However, they are not moving forward on that yet. The ECB introduced this data-driven approach earlier this year. Before that, they often indicated that even more interest rate hikes were needed.

But in the meantime, central bankers have become more cautious. This is because the consequences of interest rate increases are not measurable after some time. Inflation is now much lower than last year, although another unexpected increase occurred last month. Underlying inflation, excluding the volatile prices for fuel and food, is also still high. Not if it goes down from ECB is satisfied.

Thanks to seven interest rate increases from the ECB, the deposit rate, the interest that banks receive when they deposit their money with the European Central Bank, has now risen from minus 0.5 percent in the middle of last year to 3.25 percent. In the autumn of 2008, interest rates were last at that level. Moreover, the interest rate was last higher than 3.25 percent in 2001.

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