The European Central Bank (ECB) raised interest rates in the eurozone by 0.5 percentage points. This is slightly lower than the previous two times where 0.75 percentage point was added.
However, central bank policymakers still see the need to raise interest rates “significantly” at a “solid pace” to bring inflation back to 2%. Inflation will reach 6.3% next year, the ECB now predicts. It will not get close to the desired level again until 2025 and inflation will reach 2.3%.
The ECB says in the press release that inflation is very high and that interest rates will rise again to return to that 2 percent. So this is not the ultimate interest rate,” says political economy professor Jacob de Haan of the University of Groningen.
Basic inflation
Core inflation, excluding the often volatile food and energy prices, will continue to rise next year. This is because the high price of energy is passed on to more and more companies. The same is true of the higher wages that workers in many sectors earn, but which companies also want to recoup. In 2024, core inflation, which reflects the underlying trend well, will decline again.
The ECB also warns that the euro zone economy could contract this quarter and slip into a recession early next year. For all of next year, the central bank expects the eurozone economy to expand by 0.5 percent after growing 3.4 percent this year. In 2024 and 2025 there will be growth of just under 2 percent.
In the end
The ECB has also announced that it will slow down its purchases of government bonds and corporate bonds. The central bank no longer bought extra loans, but reinvested the money when it was repaid. From March, the ECB will reinvest 15 billion euros less and until the end of June this amount will be spent every month on new bonds. ‘Maturing bonds will no longer be refinanced from then on, the portfolio will be gradually reduced. With 15 billion a month. In the end.’
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
