European Central Bank sets interest at lowest level in two years

There are more and more signs that indicate that a continuation of the series of reductions is not self -evident. Various ECB managers, including Governor Pierre Wunsch of the National Bank of Belgium, have already shown that the interest may remain unchanged for a little longer this spring. The risk that the new American trade policy reinstalles inflation is an important consideration.

The American policy makes the work of the ECB in various areas. The trading rates make products more expensive, which has an inflation -promoting effect. Europe has escaped this so far, but that can change at any time. In that case, the European Commission will take countermeasures, so that American products in Europe will also become more expensive.

In addition, there is the geopolitical state around Ukraine. The American decision to no longer support that country increases the need for extra European defense investments. That played a role in the German decision to let go of the debt brake, which in turn led to a higher interest rate on government bonds. The borrowed billions that the Germans want to pump into their economy can also boost inflation.

Important for the wallet

The fact that the ECB has reduced the interest again despite all that uncertainty has to do with the promise of chairman Christine Lagarde to make the policy dependent on hard economic data. These are mainly figures about inflation, the credit market, wages and profits. As long as they develop in the desired direction, the ECB does not deviate from the path taken.

“If you lower too quickly, economic overheating and inflation threatens. But slowness entails the risk of recession ”

Carmignac

“There is a lot at stake,” noted the analysis team of the French asset manager Carmignac. “The speed with which the reductions are implemented is less obvious.” Some drivers would argue for a break because they think the economy no longer needs extra oxygen. The incomes rise and more credit is granted. Others believe that the economy can safely be blown up a little more. They point to the falling inflation and wage moderation.

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“In this uncertain situation, the pace of interest changes is important,” analyzes Carmignac. “If you lower too quickly, economic overheating and inflation threatens. But slowness entails the risk of recession. “

The level of the ECB interest rate is very important for the wallet of consumers. The interest help determines the pace at which daily life becomes more expensive. The ECB decisions also influence the interest on savings, and to a lesser extent on mortgage loans.