The European Central Bank (ECB) raised interest rates in the eurozone by the previously announced half a percentage point. This means that politicians in Frankfurt have not been fazed by the turmoil in the banking sector in recent days.
According to the ECB, raising interest rates is necessary to curb inflation, which has risen sharply since the outbreak of war in Ukraine. As a result of the intervention, the central bank makes lending more expensive. People and businesses will end up spending less money. By doing this, the ECB hopes to curb demand in the economy and ensure that prices don’t go up so fast.
In the United States, however, Silicon Valley Bank (SVB) and Signature Bank went bankrupt last week. Those banks have had problems, among other things, because interest rates in the United States have risen dramatically recently. There was much panic in European stock markets on Wednesday over the financial situation of Switzerland’s Credit Suisse, raising fears that America’s woes could spill over into Europe.
Investors therefore eagerly awaited the ECB’s response to this turmoil. Some experts have speculated that the ECB could decide on a rate hike less than a quarter of a percentage point. But other experts thought that deviating from the previously charted path would only cause more turmoil in the financial markets.
Due to the new interest rate decision, the so-called deposit rate, the interest that banks pay on the money they temporarily deposit with the ECB will return to 3 percent. This is the highest level since 2008. Consumers will notice, among other things, the higher interest rate when they take out a mortgage. Due to the ECB’s higher interest rates, banks like ING and ABN AMRO can also slowly raise their savings rates.
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.
