“To reinforce our goal, our Board of Directors decided to increase all three interest rates by 0.25%,” ECB President Christine Lagarde announced.
Thus, the interest rate on deposits, which constitutes the reference, was raised to 4%, which is the highest level since the launch of the single currency in 1999. The refinancing rate and the marginal lending facility rate increased to 4.50% and 4.75%, respectively.
The Central Bank explained that “the increase in interest rates scheduled today reflects the Board of Directors’ assessment of inflation prospects, in light of the available economic and financial data, the dynamics of core inflation, and the strength of monetary policy transmission.”
“More specifically, the Governing Council’s decisions on interest rates will continue to be based on an assessment of inflation expectations, in light of the economic and financial data that becomes available, the dynamics of core inflation and the strength of monetary policy transmission,” he points out.
Higher inflation and lower growth
The foundation’s new macroeconomic forecasts expect prices to rise by 5.6% in 2023, 3.2% in 2024, and 2.1% in 2025, approaching the medium-term target of 2%.
The outlook for economic growth is also not favourable, with the institution expecting lower growth in the next two years.
According to the European Central Bank, GDP growth is expected to reach 0.7% in 2023, 1% in 2024, and 1.5% in 2025.While expectations in June indicated growth in the euro area by 0.9% in 2023, 1.5% in 2024, and 1.6% in 2025.
Before announcing the decision, the Portuguese Finance Minister warned that any further increase in interest rates would do more harm than good.
The Minister of Finance considered that, “At this moment, the negative risks of rising interest rates, in the current context, are greater than the benefits that the fight against inflation will bring.”
To confront this new increase in interest rates, which will affect several sectors, the government has previously announced that it is preparing two mechanisms to combat mortgage loan installments. The executive authority is also studying the possibility of setting a “brake” on increasing rents.
With agencies
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