The European Central Bank raises interest rates by 0.5 percentage points

With the rate now set at 2.5%, the entity is trying to curb inflation in the bloc. Central banks in many countries made similar moves this week, with the European Central Bank (ECB) announcing on Thursday (15/12) a 0.5 percentage point increase in the interest rate in the eurozone, to 2.5% annually, with the aim of trying to control inflation. This is the fourth consecutive rise in interest rates in the euro area, which in July were -0.5%. This time, the increase was more moderate than that announced in September and October, when the increase was 0.75 percentage points. Despite the slowdown in the pace of growth, European Central Bank President Christine Lagarde said the bloc is “playing the long game” and expects the rate to continue to rise next year. “We believe that interest rates will continue to have to rise significantly, at a steady pace, to levels sufficiently restrained to ensure a timely return of inflation to the medium-term target of 2%,” Lagarde said. The headquarters of the European Central Bank is located in Frankfurt, Germany. The prime rate of interest is much lower than what individuals and companies tend to pay when taking out loans, but its course has a decisive influence on the rate that will be charged for those loans. Highest rate since 2008 The current interest rate, at 2.5%, is the highest in the euro area since 2008. That year, the global financial crisis prompted central banks to cut interest rates to unprecedented levels to spur the economy and, in general, kept them low for more than who hold. However, the year 2022 has brought a series of upheavals to the global economy. After two years of the coronavirus pandemic and subsequent instability, Russia’s invasion of Ukraine has affected energy and food prices, sending inflation soaring in many countries. Raising interest rates is a tool central banks use to fight inflation. This measure seeks to discourage borrowing and spending in an effort to reduce demand and thus prices—a balancing act that, on the other hand, can also slow economic growth or lead to stagnation. Global trend The ECB’s announcement came a day after the US central bank (Fed) also confirmed a similar interest rate increase of 0.5 percentage points. In the United States, the interest rate has been revised to between 4.25% and 4.75%. Like the European Central Bank, the Fed has also slowed the pace of its increase, after four consecutive hikes of 0.75 percentage point, which the entity has already indicated is happening as inflation begins to ease. In the United Kingdom, also this Thursday, the Bank of England raised the interest rate by 0.5 percentage points, to 3.5%, the highest rate in 14 years – the ninth consecutive increase since December 2021. So far, the SNB has chosen to raise the interest rate by 0.5 percentage point to 1%. And in Norway, there was an increase of 0.25 percentage points. gb/bl (AFP, Reuters, dpa, rtr)