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The European Central Bank (ECB) raised interest rates by 0.25%

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Photo: Pixabay
Photo: Pixabay

The European Central Bank increased its key interest rates by 25 basis points following the Thursday meeting. This marks the highest rate level since 2008. The ECB has raised rates for the eighth consecutive time. The ECB's website states that inflation is decreasing but is expected to remain excessively high for a while. Therefore, the governing council intends to ensure the timely return of inflation to the medium-term target of 2%. The base interest rate for loans has been raised to 3.75%, the deposit rate to 3.25%, and the marginal lending rate to 4%. The ECB also plans to halt the reinvestment of maturing bond holdings under the asset purchase program (APP) totaling €3.2 trillion in July of this year.

In November, the European Commission worsened its forecasts for economic growth and inflation in 2023. According to the new projections, price growth is expected to average 8.5% this year and 6.1% in 2023. These forecasts significantly exceed the previous estimates made in July. Previously, growth of only 0.3% in 2023 was projected compared to the previous forecast of 1.4%.

In February, the European Commission forecasted that the Eurozone economy would be stronger this year than previously anticipated. A mild winter and substantial gas reserves helped alleviate the energy crisis, while the labor market remained stable. As a result, the official representatives of the European Union raised the economic growth forecast for the current year by 0.9% and stated that a recession would be avoided. They also lowered the forecast for consumer price growth, although it remains high at 5.6%.

Inflation in the Eurozone turned out to be lower than economists had predicted, reaching the lowest level since Russia's invasion of Ukraine over a year ago, at 6.1%. According to the Financial Times, Christine Lagarde, the President of the European Central Bank, believes that further interest rate hikes are necessary to curb persistent price pressures.

In the Eurozone, price pressures remain higher than in the United States, where consumer price inflation decreased to 4.9% in April. Prices are decreasing faster in both regions compared to the United Kingdom, where inflation reached 8.7% in April.

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