Inflation: the European Central Bank raises its interest rates by another 0.5 point

The fight against inflation continues. The European Central Bank (ECB) raised its key interest rates by 0.5 percentage point on Thursday, February 2, as at its previous meeting in December. She “will raise them up again” especially in March, she announced in a press release after her monetary policy meeting.

ECB interest rates are now in a range between 2.5% and 3.25%, the highest since November 2008. The institution intends to increase “substantially interest rates at a steady pace”but hears “assess” follow-up to be given to this policy in March.

The institution is dealing with a massive price spike triggered by the war in Ukraine, which led it to launch a round of rate hikes in July, unprecedented in its magnitude and ending nearly a decade of “money cheap”. Unlike the Federal Reserve of the United States, the institution based in Frankfurt believes that it is not yet time to ease off and slow down its monetary tightening.

The euro zone “more resilient than expected”

Across the Atlantic, the FED indeed raised its main interest rate on Wednesday for the eighth time in a row. However, it has slowed the pace compared to previous increases.

While in the United States, inflation peaked in June 2022, the phenomenon is much slower in the euro zone. Thus, the rise in prices reached a peak there only in October, at 10.6%. In January, inflation in the euro zone fell for the third consecutive month, to 8.5%, more than expected by economists thanks to the decline in energy prices, while remaining well above the ECB target of 2% in the medium term.

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The European Central Bank has all the less qualms about tightening the monetary screw further as the euro zone should escape a recession this winter, thanks to a slight growth in GDP (+0.1%) in the fourth quarter of 2022, according to Eurostat. Despite “the weakness of global business and the strong geopolitical uncertaintythe euro area economy “proving more resilient than expected and should recover over the coming quarters”thanks to “bottlenecks that are being resolved” and to “the gas supply has become more secure”assured the President of the European Central Bank, the French Christine Lagarde, Thursday.

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