ECB: will this interest rate hike be the last?
The European Central Bank has raised its key interest rate for the tenth time since July 2022. The bank hopes the 0.25 percent points increase to 4.5 percent will bring down the inflation rate, which currently stands at 5.3 percent in the Eurozone. Commentators discuss whether the move will ease the burden on consumers and what side effects it could have.
The Frankfurter Allgemeine Zeitung welcomes the ECB's decision:
“Inflation in the Eurozone is too high. Even if it is moving in the right direction - downwards - the expected 3.2 percent for 2024 means that the target of around 2 percent is not within reach. Price stability is the ECB's mandate and therefore its top priority. Fighting inflation is not an end in itself: dropping inflation will ease the burden both on the economy and consumers. A pause would have undermined the ECB's credibility on its path to this goal.”
A burden on the economy
Ilta-Sanomat hopes the interest rate hikes will finally have the desired effect:
“The sudden slump in sectors like the housing and real estate market, the construction sector and the automotive sector reflects the dramatic nature of the economic slowdown and shows that a slight downturn in the economy as a whole can translate into a dramatic setback for some sectors. ... While the ECB has rightly tried to curb excessive inflation, its hefty interest rate hikes have become an additional burden on the economy. It is now to be hoped that the ECB's tight interest rate policy will start working and curb inflation - and that the rate hikes will come to an end before they cause irreparable damage to indebted households, companies and the economy as a whole.”
The fear cycle gains momentum
Kurier warns of the consequences of the new interest rate increase:
“This latest hike will affect borrowers with variable rate contracts. The vast majority will be able to cope with this step. For every 100,000 euros borrowed, 20 more euros per month will be due. But the accompanying fears are stopping entire sectors from making new investments, leaving housing projects standing empty with the houses unsold, and the restrictive lending guidelines in Austria are doing the rest. Off we go into a recession, and then the fear cycle gains even more momentum. The economy is based on facts and figures, but negative psychology has an enormous influence.”
Rate hikes coming to an end
“On a more positive note, this was most likely the ECB's last action aimed at pulling money out of borrowers' pockets, at least for the next few years. ... The ECB is aware that a further rise in interest rates could have a destructive effect on economic growth. ... Indeed, according to its own estimates, the Eurozone economy will grow by [only] 0.7 percent this year, 1 percent next year and 1.5 percent the year after. However, it's clear that in the eyes of the central bank the target of bringing inflation down to an annual rate of 2 percent is more important than accelerating economic growth.”
Monetary policy is not the only tool
Governments must also fulfil their duties, ABC agrees:
“A clear majority on the ECB Executive Board favoured further monetary tightening given that inflation remains high. ... However, analysts believe that due to the looming slowdown of the European economy, the ECB's series of interest hikes is coming to an end. It should be remembered, however, that monetary policy is not the only tool to fight the scourge of inflation. Governments can also curb rising prices by moderating fiscal policy, cutting public spending and introducing reforms that boost competition in domestic markets.”