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Global Economy

ECB changes course: There are interest rates again – namely 0.5 percent

This Thursday, the European Central Bank (ECB) announced in Frankfurt that the key interest rate in the euro zone would be raised by 0.5 percentage points. The increase is therefore more significant than expected. The reason for this is apparently the bleak prospects for further rising inflation.

The period of negative interest rates for banks ends on July 21, 2022. Those who save money in the euro zone can be happy, because the change of course by the European Central Bank means that saving is worthwhile again. However, loans are also becoming more expensive again.

The official key interest rate, which was previously 0 percent, and the interest rate for prime refinancing will also be raised by 0.5 percentage points.

The ECB raised its key deposit rate by 50 basis points to zero percent, beating its own forecast of a 25 basis point hike. Before the ECB, borrowing costs had increased in the US and other countries.

This change of course had been announced weeks ago – only the exact value was not known.

The main goal of the European currency guardians is the fight against inflation. In June, this was a record 8.6 percent in the euro zone. This puts inflation more than four times higher than the ECB's target. The target for inflation is two percent – and ECB boss Christine Lagarde actually wants to achieve this again.

However, there is a risk of a recession in the euro zone – that is, a shrinking economy, triggered by Russia's war in Ukraine and the energy crisis.

The last rate hike was 11 years ago, when Jean-Claude Trichet was President of the ECB. But immediately after him, his successor Mario Draghi initiated the interest rate cuts that have determined monetary policy in Europe ever since – until today.

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