European Central Bank Raises Interest Rate Again by 0.75 Percent

As expected, the European Central Bank (ECB) raised interest rates by 75 basis points for the second time in a row. She hopes this will help fight inflation of 9.9 percent.

 

The ECB summit decided on Thursday to raise the three different interest rates by 0.75 percentage points. That should cool inflation. “Inflation is still far too high and will remain above target for an extended period. For example, in September, inflation in the euro area was 9.9 percent,” says the interest rate decision.

The ECB executives also expect to raise interest rates even further. The ECB is pursuing an official inflation target of 2% over the medium term.

By raising interest rates, borrowing becomes more expensive. This should lead to companies and private individuals, for example, borrowing less. In addition, by cooling the economy this way, demand should fall, so prices rise less quickly.

This is the third interest rate hike in a row. In July, the ECB had raised interest rates by half a percent – the first rate hike since 2011 after years of low-interest record rates. Last month it added 75 basis points, the most significant increase in more than 20 years. So now another 0.75 percentage point is added.

The increase in the three interest rates will take effect on November 2. For example, the key interest rate for main refinancing operations – the interest banks pay to borrow money from the ECB for a week – will rise to 2 percent. In addition, the much-discussed deposit rate rises to 1.5 percent.

This is the interest that banks receive when they park excess money at the ECB for a short period. Unfortunately, this rate was negative for years, forcing banks to pay to deposit money at the ECB themselves – an incentive to pump the money into the economy.