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ECB raises key interest rate by 0.25%

ECB raises key interest rate by 0.25%

May 04, 2023

 

Continued high inflation

With its current interest rate policy, the European Central Bank has been trying to curb inflation in the euro zone since July of last year. The current rate hike is the sixth in a row. Analysts have already assumed that today's interest rate hike of 0.25% means a throttling of previous policies. However, further rate hikes of 25 basis points are to be expected in the future.

 

Fragile situation on financial markets.

The current interest rate dispute is linked to the fragile situation on the financial markets. Several financial institutions have recently found themselves in difficulties, partly because of higher interest rates. Higher interest rates also mean further pressure on economic growth. Banks are becoming more cautious about lending to companies and investment is falling. On the other hand, the European Central Bank is primarily committed to fighting inflation, which was still 7% in the euro zone in April. This balancing act will drag on in the coming months.

 

Rate hike bad for mortgage rates.

The interest rate hike is good news for everyone who has money in their bank accounts, as this will earn higher interest rates in the longer term. Everyone else who is dependent on credit is at a disadvantage. You must expect that you will be confronted with higher costs in the next negotiations with the bank.

 

Euro exchange rate remains stable

The euro exchange rate remains relatively stable in relation to the Swiss franc and is currently quoted at EUR/CHF 0.979. This most likely has to do with investors anticipating this interest rate decision. However, it should be noted that the euro-franc exchange rate is currently at its lowest point in the last 5 months

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