In the fight against high inflation, the European Central Bank (ECB) is slowing down the pace of interest rate hikes. The currency watchdog around ECB boss Christine Lagarde decided on Thursday to raise the key interest rate by half a percentage point – to 2.50 percent. In October and September they had raised interest rates in jumbo steps by 0.75 percentage points each. The central bank announced this on Thursday in Frankfurt after a meeting of the ECB Council.
In addition, the central bank wants to gradually reduce its bond holdings from March 2023. From then on, funds from expiring securities of its multi-trillion general purchase program APP will no longer be fully invested in the purchase of new bonds. By the end of the second quarter of 2023, inventories are to be reduced by an average of 15 billion euros per month.
In view of inflation that had been dangerously low for a long time, monetary authorities had started buying government bonds and other securities on a large scale in March 2015. The ECB worried about a dangerous spiral of price cuts across the board and a concomitant contracting economy.
shrinking economic power
The ECB believes that the economy in the euro zone is on course for recession. The economy could shrink in the current and next quarter, said ECB boss Christine Lagarde after the interest rate decision. The reasons for this are the energy crisis, the great uncertainty, the global economic downturn and tighter financing conditions. However, according to the latest projections by European Central Bank experts, a recession is likely to be relatively short and mild. However, growth in the coming year is likely to be restrained.
EU Economic Commissioner Paolo Gentiloni has also predicted a recession in the euro area for the winter. He assumes that the economy will not return to growth before spring. According to projections by the EU Commission, gross domestic product in the currency area is only likely to rise by 0.3 percent next year. In the summer quarter, GDP had increased by 0.3 percent.
The central bank economists expect economic growth in the euro zone of 3.4 percent for this year. In September they had predicted 3.1 percent. For 2023, they assume an increase in economic output of 0.5 (September forecast: 0.9) percent and for 2024 an unchanged 1.9 percent. In 2025, they expect gross domestic product (GDP) to increase by 1.8 percent.
battle of inflation
The European currency watchdogs are following the example of other central banks in Europe, which also want to counteract excessive inflation by raising interest rates. The British central bank also raised the key interest rate by 0.5 percentage points to 3.5 percent. It is the ninth rate hike since the end of last year, when the base rate was just above zero.
Like other central banks, however, the Bank of England is increasingly finding itself in a dilemma: On the one hand, it wants to use its tighter monetary policy to combat the high inflation of 10.7 percent recently. On the other side is the British
The SNB follows the Fed
The Swiss National Bank (SNB) is also holding out the prospect of further increases after the third key rate hike in a row. “Inflation has fallen somewhat since August,” said SNB President Thomas Jordan on Thursday. “Although this development is encouraging, it is too early to give the all-clear.” The underlying inflationary pressure has continued to increase, partly because of high inflation abroad, and there is a risk that inflation in Switzerland will remain high in the medium term. “It cannot be ruled out that further interest rate hikes will be necessary to ensure price stability,” Jordan said.
The SNB had previously raised the key interest rate by 0.5 percentage points to 1.0 percent – the highest level since the global financial crisis in 2008. The Swiss monetary authorities were less bold than they were last in September, when they presented a record interest rate hike of 0 .75 percentage points had said goodbye to negative interest rates. They are not alone in their approach and their assessment of inflation: the US Federal Reserve also slowed the pace of interest rate hikes on Wednesday, but sees it as far from having achieved its goal in the fight against inflation.
dk/hb (dpa, rtr)