Frankfurt, Germany, August 08 – The European Central Bank (ECB) raised interest rates by 25 basis points on Thursday, July 27, its first increase in over a decade, in an effort to tackle inflation that is running at a record high.
The ECB also said that it expects to raise interest rates again in September and that it could raise rates by more than 25 basis points at that time.
“Inflation has been coming down but is projected to remain too high for too long. The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It, therefore, decided today (June 15) to raise the three key ECB interest rates by 25 basis points, the ECB said in a statement published on its website in June. 1
The rate came into force on Thursday, July 27. 2
The ECB’s decision was widely expected, but it is still a significant step for the central bank, which has been under pressure to act on inflation for months.
The ECB said that it expects to raise interest rates again in September and that it could raise rates by more than 25 basis points at that time. The central bank also said it will reduce its balance sheet in the third quarter. 3
The ECB’s rate hike indicates that the central bank is serious about tackling inflation. However, it is unclear whether the ECB will be able to bring inflation under control without causing a recession.
Economists said that the ECB is walking a fine line between raising rates enough to cool inflation, but not so much that it causes the economy to contract.
- ecb.europa.eu: https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp230615~d34cddb4c6.en.html[↩]
- Reuters: https://www.reuters.com/markets/europe/ecb-raise-rates-by-25-basis-points-july-slim-majority-say-sept-too-2023-07-20/[↩]
- Bloomberg: https://www.bloomberg.com/news/articles/2023-06-16/economists-see-rising-chance-of-ecb-hiking-rates-in-september[↩]
