European Central Bank to increase interest rates for the first time since 2011
Key takeaways:
- Base rate to increase by 0.25% and quantitative easing to halt in July after ECB alerts about inflation.
- The European Central Bank (ECB) intends to raise interest rates for the first time since 2011 after cautioning inflation would rise by more than earlier estimated.
Resisting calls for a 0.5% growth next month, the ECB’s governing council told the base rate for the 19-member currency bloc would increase by 0.25%, with a further, perhaps more significant, increase planned for September.
The rise in July will lift the primary deposit rate for commercial banks from -0.5% and advance the 0% lending rate towards the Bank of England’s equal base rate of 1%.
Monthly injections of electronic funds into the economy, known as quantitative easing, will also be halted in July. However, the current stock of ECB loans will stay at about £8tn, or 63% of the eurozone’s yearly gross domestic product.
At a session in Amsterdam, the governing council said that inflation had become a “major challenge” and that inflationary forces had “widened and intensified.”
According to its latest predictions, inflation will average 6.8% this year, well beyond the 5.1% expected in March, before falling to 3.5% in 2023 and 2.1% in 2024.