The European Central Bank (ECB) has announced a new jumbo hike of interest rates in a bid to bring down record inflation in the eurozone.
FREMONT, CA: To lower record inflation in the eurozone, the European Central Bank (ECB) has announced a new big boost in interest rates. The bank increased its three major interest rates by three-quarters of a percentage point. The interest rates set by the central bank directly affect the rates commercial banks provide to individuals and businesses in the eurozone.
As a result, credit cards, mortgages, and auto loans will increase in cost and lose some of their appeals. Governments' public deficits will worsen due to having to make larger payments on their national debt.
After the second quarter, the average debt in the eurozone was 94.2 per cent of GDP, with Greece (182.1 per cent), Italy (150.2 per cent), and Portugal (123.4 per cent) at the top of the list. Following days of rumours about the extent of the rise, the decision to raise interest rates was officially announced. For the 19 EU nations that use the euro, it is the third increase this year.
At a meeting of the Governing Council, the ECB stated that the organisation expects to raise interest rates further and that it will base its future decisions on the evolving economic outlook. It stated that inflation remains too high and will continue over the objective for a considerable time. In an attempt to lower surging prices, the ECB, like other central banks worldwide, is adopting steps to make spending more expensive for individuals and businesses. However, the battle against inflation is anticipated to be difficult. High-interest rates can slow the economy down by limiting demand, investment, and hiring.
The Ukraine conflict and the energy crisis have made the ECB's goal of price stabilisation difficult to achieve, but the bank still appears determined to push through these issues.
Annual inflation in the eurozone hit a record high of 9.9 per cent in September, more than five times the ECB's two per cent objective. The three Baltic nations all have inflation rates above 20 per cent. Energy expenses were originally affected, but the increasing tendency has since expanded to include food, alcohol, industrial items, and services.
According to ECB President Christine Lagarde, economic growth notably slowed in the third quarter of the year, and we predict a further slowdown in the balance of this year and at the start of next year. In addition, she said that polls indicate new orders in the industrial sector are declining and that demand for services is weakening following a robust performance in recent quarters.
With Lagarde predicting slightly more unemployment in the future, the labour market, which has so far shown resilience and is currently at a historically low level of 6.6 per cent, could also begin to be impacted.
