ECB raises key interest rate by 0.25 points to 3.75 percent

The European Central Bank (ECB) has taken its foot off the gas a little on its course to increase interest rates in the fight against inflation. The currency watchdog around central bank chief Christine Lagarde decided on Thursday to raise the key rates by 0.25 percentage points to 3.75 percent. It is the seventh rate hike in a row. In March they had raised interest rates by half a percentage point.

The deposit rate that is decisive on the financial markets and that financial institutions receive from the central bank for parking excess funds will thus be 3.25 percent in the future. The ECB also said it is ready to adjust all of its tools within its mandate to ensure inflation returns to the 2% target in the medium term.

FED heading for pause

In July 2022, after years of ultra-loose monetary policy, the monetary watchdogs implemented the turnaround on interest rates and since then, including the new step, have raised the key rates at a rapid pace by a total of 3.75 percentage points. In the USA, the US Federal Reserve also raised interest rates by 0.25 percentage points on Wednesday and is now heading for a pause.

Inflation still too high

For the ECB, the fight against the ongoing price surge in the 20-country community is not yet won. Because inflation is still well above the central bank’s target of two percent. In April, the inflation rate rose slightly to 7.0 percent, after falling to 6.9 percent in March from 8.5 percent in February. The much-noticed core rate, which excludes volatile energy and commodity prices, fell only minimally in April to 5.6 percent from 5.7 percent in March. This drives many euro guards. Because that could indicate that the period of high inflation rates could possibly last longer than previously thought.