For the first time since 2023: ECB increases key interest rates

ECB boss Christine Lagarde did not disappoint expectations. For the first time in three years, the European Central Bank raised its key interest rate, which is also the basis for interest rates for savers, from 2.0 2.25 percent to. The decision was unanimous, said Lagarde. Other options were not even discussed.

“No insurance”

The interest rate increase is not a hedge to keep inflation expectations in check, as was previously criticized, but rather a direct consequence of the Iran war. The Shock effect on energy prices is already taking longer than experts expected. “We are seeing inflation slowly spreading through the economy,” Lagarde said. Letting them go is the greater risk. Given the circumstances, the interest rate hike is a good monetary policy decision. The war threatens to further fuel inflation while the economy weakens.

Gloomy prospects

In any case, the prospects have clouded over. The forecasts for inflation in the Eurozone for this year have been raised 3 percent raised. In March the figure was still 2.6 percent. According to calculations by the ECB experts, inflation should fall to 2.3 percent in 2027 and return to the ECB’s target value of 2.0 percent in 2028.

Your predictions for this Economic growth In the Eurozone, the ECB experts scaled back. This year the economy in the Eurozone should only be around 0.8 percent grow, in March it was still expected to be 0.9 percent. The ECB experts expect growth of 1.2 percent next year and 1.5 percent in 2027.

Insecurities

The outlook continues to be characterized by uncertainty, said Lagarde. Depending on the duration and intensity of the energy price shock as a result of the Iran war and its indirect effects and Second round effectsfor example on wages, inflation could continue to rise and economic growth could be significantly weaker. The head of the central bank said that no such second-round effects are yet being seen. But that doesn’t mean that things can’t change soon.

The ECB bases its monetary policy decisions on three scenarios, one for a mild, one for a medium and one for a severe course. In the worst case, you lose one 4.0 percent rising inflation and economic growth of just one half percent out of. When determining the further monetary policy course, we will be guided by current economic and financial data and decisions will be made from meeting to meeting, said Lagarde.

Not the last interest rate step

Economists assume that this will not be the ECB’s last interest rate hike this year. A further increase of 0.25 percentage points is expected by September at the latest.

criticism

The ECB also received criticism for the interest rate move. The interest rate increase is prematuresaid the German Federal Association of Foreign Trade Wholesalers (BGA). It slows down necessary investments by medium-sized businesses. There were also critical voices from the union. Prices would not rise due to an overheated economy, but rather due to the energy price shock, the German Federation of Trade Unions (DGB) said: “There are no economic justification.“

Die The stock market reacted cautiously to the interest rate increase; it had already been priced in. The German DAX gave up gains and was only slightly up late on Thursday afternoon.