The ECB started raising interest rates last July. At that time, it increased the base rate to 0.50 percent from the record low of zero percent, at which it has been kept since 2016. In September and October, it increased the base rate by 0.75 percentage points. In December, it slowed the pace of increases to 0.5 percentage point for the first time as it believed inflation was close to peaking.
However, even the previous increase in interest rates from July by a record 3.5 percentage points failed to bring inflation to the ECB’s two percent target. The Monetary Committee thus has no other option but to continue tightening monetary policy.
The slower rate hike comes after data from the euro zone banking sector showed the biggest drop in loan demand in more than a decade. This suggests that the previous rise in interest rates is having an impact on the economy and the ECB’s monetary policy is restraining growth.
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The bank did not provide any guidance on how it will proceed. The Governing Council will continue to be data-driven in its decision-making, and rate decisions will continue to be based on its assessment of the inflation outlook in light of incoming economic and financial data and the dynamics of adjusted inflation, the statement said.
Bankers were divided before the meeting on whether to raise interest rates by a quarter or half a percentage point. However, most analysts and economists polled by Reuters were betting on a slower hike due to weaker statistical data in recent weeks and a slowdown in interest rate hikes by other leading central banks. The slower increase was also supported by the fact that the eurozone economy barely grew in the last quarter and that banks are tightening access to credit.
The basic interest rate remains at seven percent, the CNB decided
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