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LAST UPDATE | 27 Jul 2023
THE EUROPEAN CENTRAL Bank (ECB) has increased interest rates, for the ninth consecutive time, by 0.25% this afternoon.
This increases the ECB’s benchmark deposit rate to 3.75% – bringing the interest rate to the highest it has been since May 2001.
In a statement from the ECB today, it said the latest decision to increase the interest rate is to ensure “that inflation returns to its 2% medium-term target in a timely manner”, something which the Governing Council says its determined to do.
“The Governing Council decided to raise the three key ECB interest rates by 25 basis points,” the statement said.
“Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.25%, 4.50% and 3.75% respectively, with effect from 2 August 2023,” it added.
Commenting on the hikes today, Chairperson of the Association of Irish Mortgage Advisors Trevor Grant said those with a tracker mortgage will impact their mortgage payments by €25 or more.
Grant added the increase does depend on the borrower’s own mortgage interest rate as well as the size and term remaining on their mortgage.
The ECB said that developments since the last meeting support expectations that the rate of inflation will fall over the rest of the year but will remain above target “for an extended period”.
“While some measures show signs of easing, underlying inflation remains high overall,” it said.
Earlier today, the outlook for the ECB beyond today’s meeting seemed less clear, as the wind looks to have gone out of the sails of the eurozone economy.
However, the ECB said the Governing Council’s future decisions will aim to make sure that key interest rates are set at “sufficiently restrictive levels” in order to see a quick return of inflation to the 2% medium-term target.
A more direct focus on its 2% target is evident from today’s announcement.
“The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission,” the statement added.
Key rates have since risen by four percentage points, and “virtually everyone” expected the fresh quarter-point increase at today’s meeting according to German central bank boss Joachim Nagel last week.
Collectively, the 20 countries in the currency bloc fell into recession around the turn of the year, shrinking for two straight quarters.
Yet consumer prices have continued to rise at a fast clip. The rate of inflation in the eurozone sat at 5.5% in June – down from last year’s double-digit peak but still well above the ECB’s 2% target.
The ECB also increased its interest rates on 15 June by 0.25%. This is the ninth consecutive increase since July 2022.
The ECB broke with years of ultra-loose monetary policy last July when it raised rates by half a point after Russia’s war in Ukraine triggered a surge in energy and food prices.
The recent moderation in headline inflation was “mainly due to the reduction in the annual growth of energy prices”, said Eric Dor, a director at the IESEG business school.
But “excluding energy, the reduction in annual price growth is still very limited”, Dor said.
Core inflation – a closely watched measure that excludes volatile energy, food, alcohol and tobacco prices – in fact rose to 5.4% in the eurozone in June, from 5.3% in May.
Inflation has been “working its way through the economy in phases”, ECB president Christine Lagarde said at the end of June.
Officials at the Frankfurt-based central bank are now more worried about the impact of rising wages as workers demand higher salaries to cover increased costs.
It was “unlikely” that the ECB would be able to say whether rates had peaked any time soon, Lagarde said.
Analysts will nonetheless listen closely to Lagarde’s press conference at 2.45pm (12.45pm Irish time) for an indication of whether the institution will continue with hikes at its next meeting.
Despite the already bleak economic outlook, policymakers would “insist on a data-dependent, wait-and-see approach”, said Salomon Fiedler, economist at Berenberg Bank.
“The countdown to the end of rate hikes has started,” however, according to Carsten Brzeski, head of macro at ING bank.
The ECB could raise rates one last time in September but concerns over a “cooling economy and fading inflationary pressure” could then catch up to the central bank, he added.
Doubts over the future course of interest rate rises has already found an echo on the ECB’s governing council.
More hikes beyond July would “at most be a possibility but by no means a certainty”, the head of the Dutch central bank, Klaas Knot, said earlier in the month.
Steep interest rate rises have also provoked an angry backlash from political leaders in southern eurozone countries, where debt levels are higher.
More hikes “could create a more difficult situation for growth at the European level”, Portuguese Finance Minister Fernando Medina said ahead of the meeting.
Italy’s far-right Prime Minister Giorgia Meloni similarly blasted the ECB’s “simplistic recipe of raising interest rates” and warned “the cure risks proving more damaging than the disease”.
With reporting from Muiris O’Cearbhaill
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There is something about writing that creates a more personal connection – bit like reading a book on paper rather than kindle
I agree with you 100% with the whole writing vs typing thing. But paper vs Kindle?? I really can’t see the difference, except with technical books where the pages are generally bigger than a kindle page. But for casual reading, novels and the like Kindle is great. Screens in general on the other hand are terrible IMO. If I need to read something in depth I’ll print it out rather than read it on a screen.
Always did hand written notes first.
I’ve barely written anything with a pen since I got my first PC in 1992. My hand writing looks like that of a 12 year old.
Mine too! I scribble notes a lot and use my own short hand when typing notes. Not sure half the time what I wrote let alone typed :)
I work in marketing and I’ve always found that writing ideas down and doodling in general is a great way to stimulate creativity and not just from a work point of view, you can apply it to almost anything that you have going on in your life.
They’ve essentially just encouraged people to use Comic Sans MS more, the end is nigh.
Comic sans is easier to read. It has more highs and lows like handwriting. It’s easier for people with dyslexia to read.
I literally just took a break from converting my written college notes to typed, thanks Journal for ruining my life… ;)
While I can see reasoning the problem is that if I write my notes I can’t read them back later…
Not a problem with typing: I can read, search, share, format, edit…
I write to a notebook when taking notes, then type them up later. best of both! :-D
What’s new about any of this?
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