European Central Bank raises interest rates by 0.50 percentage point

This is the first rate hike in the Eurozone since 2011 and the return of rates to positive territory after eight years.

O European Central Bank (ECB) raised this Thursday, 21, interest rates in the euro zone by 0.50 percentage points.

The three main rates of fees in force in euro zone – the interest rate applicable to the main refinancing operations, the interest rate applicable to the marginal lending facility and the interest rate to the deposit facility – were raised to the same level by the European Central Bank, and are now, respectively, at 0.75%, 0.50% and 0.00%.

• interest rate applicable to the main refinancing operations (Marginal lending facility): 0.75%
• interest rate applicable to the permanent lending facility (Main refinancing operations): 0.50%
• deposit facility interest rate: 0.00%

The rise was higher than market forecasts, which had expected a 0.25 percentage point increase, as a way of avoiding a severe recession in the euro zone and not have an excessive impact on the huge public debts of many European countries.

However, in a statement, the central monetary institution informed that it has taken “important measures to ensure that the inflation return to its medium-term objective of 2%”, in line with “the Governing Council’s strong commitment to its price stability mandate”.

“The Governing Council considered it appropriate to take a major first step on its path towards normalizing interest rates. policy than signaled at your previous meeting. This decision is based on the updated risk assessment of inflation by the Council”, stressed the European Central Bank in the document.

Record inflation in Europe, which is approaching 9% a year – 8.6% in June – has put pressure on the President of the European Central Bank, Christine Lagarde, and members of the Board of Governors to adopt a more restrictive monetary policy.

O ECB also gave an indication of the upcoming meetings that will define the course of the monetary policy gives euro zone

“In the coming meetings of the Governing Council, further normalization of interest rates will be appropriate”, the text appears, “the future trajectory of the Governing Council’s policy rate will continue to depend on the data and will help to fulfill its objective of inflation of 2% in the medium term. In the context of normalizing its policy, the Governing Council will evaluate the options to remunerate the deposits of surplus liquidity”.

European Central Bank creates mechanism against sovereign debt interest spread

At the same meeting where it decided to discharge the fees, the ECB approved the Transmission Protection Instrument (TPI), the so-called “Spread Shield”.

With this instrument, the central bank European will be able to purchase public debt securities from Eurozone member countries, preventing interest rates from rising excessively.

“As the Council of ECB continues to normalize monetary policy, the ICC will ensure that the monetary policy stance is transmitted smoothly across all euro area countries,” the bank said.

Source: Exam