The European Central Bank (ECB) raised this Thursday, October 27, as in September, its main key rates by 0.75 points, in order to cope with the surge in inflation in the euro zone, fueled by the consequences of the war in Ukraine. This approached 10% in September in the euro zone, nearly five times the ECB’s target.
In July, the ECB ended more than a decade of ultra-low interest rates to support prices. With this Thursday’s decision, the rate remunerating bank cash not distributed in credit goes up to 1.5% and that on short-term refinancing operations to 2%, detailed in a press release the ECB, which “plans to continue to raise” its rates in the coming months.
The other two key rates, the one applied to banks on refinancing operations over several weeks and the one targeting the day-to-day marginal lending facility, go to 2% and 2.25% respectively.
To support the economy, from 2014 the ECB launched headlong into a bold policy of massive buybacks of government and corporate bonds and at the same time offered cheap loans to banks. This policy has enabled States to go into debt at a lower cost, in particular during the Covid crisis to finance their measures to support the economy.
With Eurozone growth outlook down and inflation outlook up, ‘likelihood of recession looms much higher on the horizon’ amid ‘long-running’ war in Ukraine , said ECB President Christine Lagarde on Thursday.
