Interest rates increased by 75 basis points European Central Bank (ECB) during today’s session, thereby confirming the expectations of those who expected a significant increase in rates. Thus, the base interest rate from 0.5% is now 1.25%.

This aggressive increase was carried out by the ECB once again within 18 days from 4 to 22 January 1999, when the euro was officially launched. In fact, such a range of interest rate hikes has never been adopted by the ECB in the past, and the 1999 hike only makes more sense to those who love historical data.

With the new increase, interest rates are set as follows: the deposit acceptance rate from 0% to 0.75%, the main refinancing line to 1.25% and the margin credit line to 1.50%. New interest rates are introduced from September 14, as indicated in the corresponding message.

We raised interest rates by 0.75 percentage points.

Check out our latest monetary policy decisions https://t.co/wtQT8KUd3h. pic.twitter.com/zX95pgI4dK

— European Central Bank (@ecb) September 8, 2022

It is noted that most analysts did not take into account the increase in the key interest rate by 0.75% after a new rise in inflation in the eurozone. Despite this, several members of the ECB’s board argued that it would be more appropriate to pursue a less aggressive policy on the interest rate front with a smaller increase.

To control inflation

In a statement, the ECB emphasizes that the move is considered necessary in order to bring inflation under control and ensure its “timely return to the ECB’s medium-term target of 2%.”

Looking ahead, ECB staff have significantly revised their inflation forecasts and inflation is now expected to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024, the statement said. .

As emphasized, d.s. it intends to raise interest rates at future meetings to moderate demand and, at the same time, prevent the risk of inflation expectations shifting upwards.

This reiterates that policy makers will carefully examine the facts and data at the moment when they have to make decisions, for what they will take into account the conditions and how they will be formed. .

Buying bonds

With regard to bond purchases, the ECB’s policy does not represent any deviation as, as stated in the announcement, it will continue to reinvest amounts of delinquent securities purchased under both the Pandemic Emergency Purchase Program (PEPP) and the application program.

For securities purchased under the APP program, the ECB says the amounts will be reinvested “for a long period of time after the date it started raising its key interest rates”, while for the amounts from PEPP securities “at least by the end of 2024.”

Finally, it states that it will use the monetary policy transfer protection instrument (Transfer Protection Instrument) in case it is deemed necessary.

According to moneyreview.grAPE-MOP