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Tuesday, March 28, 2023

ECB increases key interest rate by 0.5 percentage points

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The ECB building in Frankfurt am Main.

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The European Central Bank (ECB) is again raising the key interest rate in the euro area by 0.50 percentage points to 3.0 percent. This was decided by the central bank council on Thursday in Frankfurt. A further interest rate hike has already been announced for the next monetary policy meeting on March 16th.

ECB President Christine Lagarde outlined this course back in December: “We have to go a long way.” In January, Lagarde reaffirmed the central bank’s determination: Interest rates would have to “continue to rise significantly and steadily” in order to curb inflation sufficiently, said the Frenchwoman.

The so-called deposit rate, which credit institutions receive when they park money with the ECB, rises to 2.50 percent after the ECB Council’s decision on Thursday. Since the ECB changed course in July, savers have benefited from rising interest rates for overnight and time deposits. However, high inflation is reducing returns.

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The ECB is aiming for price stability in the euro area in the medium term with an inflation rate of two percent. This target has been a long way off for months. Although inflation slowed again in January, consumer prices in the currency area were still 8.5 percent higher than in the same month last year, according to an initial estimate by the statistics agency Eurostat. In Germany, the inflation rate was 8.6 percent in December. Above all, high energy and food prices are fueling inflation.

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