European Central Bank Raised Rates by 25 Basis Points

Estimates based on the latest macroeconomic forecasts point to inflation of 5.4% in 2023, 3.0% in 2024, and 2.2% in 2025.

The European Central Bank has decided to raise interest rates by 25 basis points to 4%.

“Inflation has lowered but is likely to remain too high for too long,” the ECB said in a note. “The Board of Governors is determined to ensure the timely return of the inflation to its 2% target in the medium term. This is why the decision was made today to raise the ECB’s three key interest rates by 25 basis points.”

Inflation lies at the heart of the new expected rise and, although declining, will still remain high for a long time to come. Estimates based on the latest macroeconomic forecasts point to inflation of 5.4% in 2023, 3.0% in 2024, and 2.2% in 2025.

After that, economic growth forecasts have been slightly revised downward, with expected growth rates of 0.9% in 2023, 1.5% in 2024, and 1.6% in 2025.

The raise of interest rates gradually affects the economy: lending growth decreases as the cost of borrowing increases, which then leads to a reduction in demand and a subsequent decrease in inflation.

Thus, the Governing Council of the ECB decided to raise three base interest rates by 25 basis points: interest rates on major refinancing operations will be raised to 4%, margin loan rates will be raised to 4.25%, and central bank deposit rates will be raised to 3.5%.