ECB Leaves Interest Rate Policy Unchanged Despite Sharply Rising Inflation

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The European Central Bank (ECB) has left key interest rates and support programs untouched, despite soaring inflation in the eurozone.

 

Therefore, all eyes in the financial world are focused on the explanation that ECB President Christine Lagarde will provide on the new interest rate decision later on Thursday. In it, she may be able to provide more clarity about what the ECB will do later this year to curb the significant price increases.

Due to the war in Ukraine and its consequences on the European economy, policymakers at the ECB are under great pressure to do something about high inflation. Since the central bank’s last interest rate meeting, prices in the eurozone have risen even faster, and many countries have lowered economic growth estimates. Energy and fuel, in particular, have become significantly more expensive, and many people feel this in their wallets. At the same time, it is precisely the task of the ECB to ensure price stability.

Yet economists did not foresee any major steps from policymakers in Frankfurt ahead of Thursday’s interest rate decision. It was already clear earlier that the ECB is not following the same pace in raising interest rates as the US Federal Reserve, which recently raised interest rates. But an interest rate step later this year is widely anticipated. Moreover, several ECB executives, including President Klaas Knot of De Nederlandsche Bank (DNB), have already said that there may even be more than one interest rate hike this year.

Before that happens, the ECB must first stop buying bonds en masse to stimulate the eurozone economy. In the written statement released after the interest rate decision, the central bank states that the program for this will be terminated sometime in the third quarter of this year. However, this expectation is based on all current economic data and is therefore subject to change. How the economy will develop soon, according to the ECB, strongly depends on the further course of the conflict in Ukraine and the sanctions against Russia.

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