In the fight against inflation, the ECB raised the base rate again by 0.25 percentage points in July 2023, for the ninth time in a year. It is now 4.25%. This was the highest level at the beginning of the global financial crisis in early October 2008. At this interest rate, commercial banks can borrow money from the ECB. The so-called main refinancing rate is used by banks when granting loans, for example, for private construction loans. Meanwhile, the financial-market-relevant deposit rate that cash houses receive from the central bank for the parking of excess funds is now at 3.75%. This is the highest level since October 2000.
All Options are open
The overall inflation rate has reached its peak in the euro area. In August 2023, it stood at 5.3%, unchanged from July 2023. The core rate, at which, among other things, volatile energy and food prices remain, now seems to be falling. “We are very close to the peak of our interest rates, but we are still a long way from the point where we could consider reducing interest rates,” said Francois Villeroy de Galhau, the head of the French central bank. Recently, the debate among the currency guards intensified as to whether it might be appropriate to pause interest rates in the light of signs of a recession. “Our options are open for this meeting and for subsequent meetings,” said Villeroy, Member of the Council of the European Central Bank (EZB).
Target: Inflation at 2%
According to the German website mehrwertsteuerrechner.de, there is currently no indication from the members of the ECB’s Board of Directors of an interest-rate decision for the September session. “The ECB’s key interest rate forecast for the September 2023 meeting: no interest rate increase or +0.25%,” the portal notes. It quotes ECB member Isabell Schnabel, who stated at the conference “Inflation: Drivers and Dynamics 2023”: “If we are of the opinion that the political course is not compatible with a timely return of inflation to our 2% target, a further increase in interest rates would be justified. In an environment of tight labour markets and structural inflation counterwinds, this would also protect the continuing increased risk of inflation remaining too long higher than our target is.”
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