The European Central Bank raises all its key interest rates by 0.25 percentage points. The increase is smaller than previous meetings, and the rate of increase in interest rates is now expected to slow down.
Anna Karismo,
Kaisa Uusitalo,
Elli-Alina Hiilamo
FRANKFURT/HELSINKI The European Central Bank (ECB) raises key interest rates by 0.25 percentage points. It justifies its decision by saying that inflation, i.e. the general rise in prices, is still too fast.
In practice, the interest rate decision means that the ECB slows down the tightening of monetary policy. The central bank started raising interest rates last summer to curb record inflation. In its most recent meetings, the ECB Council has raised the key interest rates by 0.50 percentage points, which means that the rate of increase in interest rates has slowed down with today’s decision.
Director general From Christine Lagarde at the press conference, the reasons for the slowing down of the rate of increase in interest rates were asked.
He replied that all members of the ECB Council are ready to “fight” against inflation. However, he said that different views were expressed in the meeting.
– Everyone agreed that interest rate hikes are needed and secondly that we will not stop and thirdly that we still have more to do, Lagarde said, referring to the ECB’s inflation target. The ECB’s goal is two percent inflation in the medium term.
The most common estimate of economists and analysts during the meeting was that key interest rates will rise by 0.25-0.50 percentage points. The interest rate decision was therefore in line with expectations.
The most widely followed policy rate is the overnight deposit rate. It rises to 3.25 percent. The deposit rate for commercial banks is now at its highest since 2008.
Is the end of the interest rate hike already in sight?
ECB President Christine Lagarde stressed at the press conference that the central bank still needs to work, in other words, to raise key interest rates in order to achieve its inflation target.
– This is a journey. We are not there yet, Lagarde stated.
Many analysts interpreted the interest rate decision as meaning that the peak of the interest rate level is starting to loom and the rate of increase is slowing down possibly permanently with today’s decision.
– After the interest rate decision that has just been made, the threshold for returning to tougher interest rate hikes is very high, and therefore the central bank will basically proceed in steps of 0.25 percentage points in the future, OP Financial Group’s senior market economist Jari Hännikäinen rate in your comment.
Also Chief Analyst at Danske Bank Minna Kuusisto sees that the ECB will make smaller increases in the future.
– It seems that the ECB is now moving forward in smaller and more cautious steps, but as the inflationary pressures continue, it will also be difficult to stop raising interest rates until the next meeting, Kuusisto rate the messaging service on Twitter (you will switch to another service).
– The withdrawals are not here yet, but the peak is slowly approaching in the euro area as well, an economist at banking group Nordea Kristian Nummelin to write again in his tweet (you will switch to another service).
Lagarde replied to : We cannot bring relief to the difficulties of mortgage debtors
The interest rate decision was expected to be difficult for the ECB Council. According to the latest data, the economy of the euro area is barely growing. At the same time, however, inflation has remained persistently high.
The ECB’s interest rate decision is felt most clearly in the lives of mortgage debtors.
The central bank does not directly decide on the level of the most common mortgage reference interest rate, i.e. the 12-month Euribor, but the increase in the reference interest rates and expectations of the central bank’s movements are reflected in it. Now the 12-month euribor is already around 3.8 percent.
At the press conference, asked Lagarde how the ECB took into account the situation of mortgage borrowers when raising key interest rates.
Lagarde said that the central bank is of course aware of Europeans struggling with high debt servicing costs.
– From Finland to Portugal, from the Baltic countries to Spain, the situation is that some households are suffering, Lagarde answered.
– Unfortunately, this is something that we cannot bring relief to.
Lagarde emphasized that the ECB’s task is to take care of price stability, and raising key interest rates is the bank’s tool for this. According to him, the best thing the ECB can do now is to curb inflation and help interest rates return to a different level.
Story corrected 3:25 p.m.: It was previously erroneously stated in the story that the overnight deposit rate would rise to 3.75 percent. The correct figure is 3.25 percent.