The European Central Bank is expected to raise its key rate again to fight inflation.
By Thursday, the decision is expected to have a noticeable impact on household borrowing.
The European Central Bank is expected to raise its key rate again to fight inflation.
By Thursday, the decision is expected to have a noticeable impact on household borrowing.
The European Central Bank (ECB) is still tightening the screws on rising prices. The European Monetary Authority is due to announce on Thursday, July 27, a new increase in the key rate in the face of still too high inflation. In June, ECB President Christine Lagarde already considered raising the key rate “very likely“During this month of July.”Almost everyone expects a 0.25 percentage point increase.“Like last month, Joachim Nagel, director of the influential German central bank, said last week. This will increase the bank liquidity deposit rate at the ECB, which he refers to, to 3.75%.
Getting a loan has become more difficult for households
This new increase will come as the institution continues to raise its rates due to the inflation that has affected the European Union since the end of the Covid-19 pandemic and the start of the war in Ukraine in February 2022. The ECB, whose mission is to stabilize prices in the European money market, uses the increase in these rates as a tool to influence consumption in the eurozone.
How might this increase affect your finances? Thus, banks whose main source of liquidity is the ECB will have to borrow from the financial institution at a higher rate. However, with such an increase, the consequences for the clients of these banks are almost mechanical. To compensate with more expensive money, the latter will increase their own lending rates, making it more difficult for households and businesses to borrow because it will become more expensive.
The task of the ECB: to limit the rise in prices
By making this choice, the ECB hopes to limit the scope of demand in the euro area by controlling consumption. The hope of the institution is that this will reduce the ability of businesses and businesses to raise prices while lowering wage requirements. The central bank is rushing to finish this thought because, with the exception of energy, the price slowdown is still very limited. From a record 7.9% in March 2023, the aggregate used by the ECB to measure inflation fell timidly to 6.9% in June 2023.
However, this classic strategy of raising rates to curb inflation is not without criticism, especially among the more volatile eurozone countries in the south of the continent. These states are afraid of risks.”higher to create a more challenging environment for European growth“, – explained a few days ago the Minister of Finance of Portugal, Fernando Medina.
- Historic ECB rate hike: what are the implications for your mortgages?
Despite these caveats, the ECB should stick to its hard cash cap strategy in the coming months. Christine Lagarde has been repeating for some time now that he’s staying”long haul“Central Bank to really reduce prices.
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