The ECB will raise interest rates by 0.25% in July and end the bond-buying program. It is expected that the increase in interest rates will also lead to an increase in interest rates on mortgages.
The rapid rise in inflation as the economy emerged from the Covid-19 lockdowns was initially driven by energy and food prices, but the Russian invasion of Ukraine accelerated those trends.
The magnitude of the rate hike to curb inflation has been hotly debated by ECB policymakers, with chief economist Philip Lane arguing 25-basis point moves in July and September, while others argue that 50 bps should be considered. In support of their argument, the ECB raised its inflation forecast once again, now expecting inflation to be 6.8% this year, up from 5.1% previously.
"We intend to raise the key ECB interest rates by 25 basis points at our July monetary policy meeting," says ECB President Christine Lagarde
"We intend to raise the key ECB interest rates by 25 basis points at our July monetary policy meeting," says ECB President Christine Lagarde. This is not a step, it is a journey. We will ensure that inflation returns to the 2% target in the short term," ECB President Christine Lagarde told a news conference.
The European Central Bank (ECB) has pulled out of a long-term stimulus package and hinted that the first rate hike since 2011 would take effect next month, and if inflation does not ease, September is likely to see even bigger moves. It is expected that the increase in interest rates will also lead to an increase in interest rates on mortgages.
"We intend to raise the key ECB interest rates by 25 basis points at our July monetary policy meeting," says ECB President Christine Lagarde | Read more on the interest rate hike: https://t.co/UFCLhCC9Zs pic.twitter.com/dsOLZh7Mkt
— RTÉ News (@rtenews) June 9, 2022
Inflation is likely to rise further to 8.1%. The ECB has announced that the central bank of the 19 euro countries will close its bond purchases on July 1 and raise interest rates by 0.25% after that month.
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