In the fight against inflation, the central bank is counting on further interest rate hikes.
(Photo: dpa)
Frankfurt The European Central Bank (ECB) continues to raise interest rates in the euro area. It raises the key interest rate by 0.5 percentage points to 2.5 percent. The currently even more important interest rate that banks receive for their deposits at the ECB will rise from 1.5 to 2.0 percent. The central bank announced this on Thursday afternoon.
Markets had roughly priced this in earlier. The interest rate hike is therefore smaller than in September and October, when the ECB had increased it by 0.75 percentage points.
With its decisions, the central bank is reacting to the high inflation in the euro area. In November, the inflation rate fell slightly to 10.0 percent. However, it is still well above the target value of two percent that the ECB is aiming for in the medium term.
>> Read here: Central bank chief Lagarde explains the new decisions
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In addition, the ECB is now signaling that it no longer intends to renew all maturing bonds from its older purchase program APP from March. Papers in the amount of 15 billion euros per month are to expire. So far, the ECB had renewed all maturing bonds.
The central bank is thus initiating the reduction of its bond portfolio. This currently amounts to around five trillion euros, which are mainly invested in government bonds from euro countries.
Unlike the short-term policy rate and the deposit rate, this should have a larger impact on longer-term interest rates. The ECB is currently not buying any more government bonds. However, it replaces all expiring papers.
From 2:45 p.m., ECB President Christine Lagarde will give a press conference on the new decisions. You can follow them on our homepage in the live blog.
In the run-up to the council meeting, there were different positions within the council on the scope of the interest rate hike. The head of the Austrian central bank, Robert Holzmann, had spoken out in favor of another jumbo rate hike. Statements by ECB Executive Board member Isabel Schnabel also suggested a preference for this.
Chief Economist Philip Lane argued that given the level of interest rates already attained, there was less reason for a further 0.75 percentage point hike. Other representatives such as the central bank governors from France, Greece and Ireland had also taken this line.
>> Read here: “We still have a lot to do” – US Federal Reserve expects key interest rate of over five percent
Proponents of a lower interest rate move also argued that inflation in the euro area may have peaked. In addition to consumer prices, producer prices in industry have also risen much less rapidly, and the costs of freight transport by ship have also fallen.
On the other hand, however, central bank officials have recently warned more urgently of the danger of a wage-price spiral in which higher wages and prices mutually inflate. Recently, the wage settlements have been higher.
More: The dispute over interest rates and inflation has shifted the balance of power in the ECB and weakened Lagarde