Europe’s currency watchdogs are bracing themselves against record inflation in the euro area. The ECB announced another interest rate hike for its meeting in Frankfurt this Thursday. Another strong interest rate hike of 0.75 percentage points is considered likely. The decisions of the Governing Council will be announced on Thursday afternoon (2:15 p.m.).
ECB President Christine Lagarde recently reaffirmed the determination of the central bank in the fight against high inflation. “We will do what we have to do. That means raising rates in the next few meetings,” Lagarde said. If the ECB does not fulfill its mandate to ensure price stability, “it would damage the economy much more”.
At their meeting on July 21, the monetary authorities raised interest rates in the euro area for the first time in eleven years. A further step took place on September 8th. For the first time in the history of the central bank, the Governing Council decided to raise interest rates by 0.75 percentage points. The key interest rate at which commercial banks can borrow fresh money from the ECB rose to 1.25 percent.
Inflation in the euro area accelerated further in September and reached a record level. Compared to the same month last year, consumer prices increased by 9.9 percent. It was the highest value since the euro was introduced as book money in 1999.
Economists believe that significantly higher interest rates are necessary to fight inflation effectively. With higher interest rates, the central bank can counteract rising inflation rates. However, there are also concerns that the economy, which is already suffering from supply bottlenecks and the consequences of the Ukraine war on the energy market, for example, will be slowed down by normalizing the monetary policy, which had been ultra-loose for years, too quickly.
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