European Central Bank raises interest rates by 75 basis points

28 Oct 2022 , 10:44 AM

In an effort to reduce its bloated balance sheet and combat an unprecedented rise in inflation, the European Central Bank increased interest rates once more on Thursday and announced changes to the conditions of its ultra-cheap loans to commercial banks.

The ECB is raising borrowing costs at the quickest rate in history out of concern that rapid price growth is becoming entrenched. Further increases are all but guaranteed because it will take the central bank well into next year and beyond to unravel a decade’s worth of stimulus.

The deposit rate for the 19 nations that use the euro increased by another 75 basis points to 1.5%, the highest level since 2009. The ECB’s interest rates have been zero for eight years until just this past July.

The ECB stated in a statement that the decision to raise interest rates today was made in order to ensure that inflation would promptly return to its medium-term inflation target of 2%.

Following the news, the euro fell and European government bond yields decreased, which was in line with market expectations.

While the euro area economy faced a number of risks to the negative due to the conflict in Ukraine and other global uncertainty, inflation risks were skewed higher, ECB President Christine Lagarde said during a news conference.

The deposit rate is forecast to reach 2% in December and peak at about 3% at some point in 2023, according to the markets, however, this timeframe is subject to alter due to the exceptionally volatile outlook.

After accumulating trillions of dollars’ worth of debt issued by governments in the eurozone since 2015, the ECB has not yet shown any indications of its intentions to begin selling off its bond holdings.

For feedback and suggestions, write to us at [e-mail]