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European Central Bank increases interest rates for the ninth time since last summer

The ECB last increased its interest rates on 15 June by 0.25%.

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.

2% inflation target

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.

Anniversary meeting

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.

‘Countdown to the end’

“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”.

© AFP 2023

With reporting from Muiris O’Cearbhaill

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    Mute FearCiarraioch
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    Nov 5th 2014, 9:38 PM

    An Taoiseach Enda Kenny having Linch today with Meter Man & Owner of Indo Newspapers Denis O’Brien .

    Our Prime Minister gets himself in the deepest of mire again , or , was it a fully intended Two Fingers to the Citizens of Ireland ?

    In any case he provoked a situation where An Garda attacked Citizens , making a peaceful protest against both of them and then tonight as a result , he provoked a near riot tonight outside a Dublin Garda Station when Irish Citizens were again attacked by An Garda with violence and pepper spray riot equipment !

    What a peaceful Country Enda Kenny promotes in Ireland & how he abuses our Democracy with abuse of Police powers on his & his buddy Denis O’Briens behalf !

    A general Election please ASAP , so that we can be rid of these ‘Cowboys’ ?

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    Mute Were Jammin
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    Nov 5th 2014, 9:48 PM

    Exactly. Its no coincidence what happened today. Enda Kenny…meeting Denis O’Brien…..close to the area in the country where the meter protests have been strongest, or that the protesting has turned violent today,the Gardai started it by dragging and beating people who were holding a sit down protest. This is the last act of a desperate man whose willing to cause riots rather than let go of power.

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    Mute Mick Hannigan
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    Nov 5th 2014, 11:04 PM

    They must think we are fools, Joan put the feelers out about the €200 charge to see the reaction of the public, it was planned by the government, this will show them what they think they might get away with, well news for the government, nothing less than abolish IW will do

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    Mute Ignoreland
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    Nov 5th 2014, 10:34 PM

    Can anybody at thejournal.ie explain why they didn’t cover the latest release of the live register figures today?

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    Mute Shinnerbot
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    Nov 6th 2014, 12:00 AM

    Nobody cares. Sinn Fein will eliminate unemployment.

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    Mute John Pepper
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    Nov 5th 2014, 9:28 PM

    Is 2014 not nearly over?

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    Mute Joey Dempsey
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    Nov 6th 2014, 7:02 AM

    The Caption photo of Kenny & Bruton speaks volumes, he looks bemused as ever, she looks like she’s about to cry. Disgraceful scenes in Santry yesterday, elderly women being man handled by gardai as Kenny ducks for cover, head on lap in his nice government car, however the smirk on his face was clearly evident. Disgusting little man whose continued arrogance is breathtaking.

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    Mute Joey Dempsey
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    Nov 6th 2014, 7:03 AM

    Sorry should read Burton albeit their all the same at this stage!

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