Inflation in Europe is still very high and so the central banks want to raise interest rates further soon. Even after the banking crisis earlier this month. “That is non-negotiable,” ECB President Christine Lagarde said in a speech on Wednesday.
After inflation rates fell a few months in many European countries, they were higher again in February. In the Netherlands, inflation rose to 8 percent. In Germany and France, too, inflation rates were not tender. Food prices in particular rose sharply.
Last week, the European Central Bank (ECB) raised its key interest rate from 2.5 percent to 3 percent. That makes borrowing less attractive. The ECB hopes that people will buy less as a result, which should ensure that prices do not rise so sharply.
In March, there was a lot of unrest in the banking sector (in the US, Switzerland and later also the EU), partly due to higher interest rates. For this reason, experts in recent weeks have doubted whether central banks should continue their planned interest rate hikes.
“We’re going to bring inflation down to 2 percent.”
“With the increasing uncertainty in the financial markets, it is even more important to stick to our interest rate policy,” Lagarde said. She also pointed out that she has already taken significant interest rate steps. Since July 2022, the interest rate went from -0.5 percent to 3 percent now.
“You can be sure that we will provide price stability and reduce inflation to 2 percent. That is non-negotiable,” Lagarde said. This percentage has been considered ideal by the ECB for years.
Joachim Nagel, the president of the Deutsche Bundesbank, also sees the need for further interest rate increases. “If we want to tame this inflation, we have to act even more stubbornly,” he said in an interview with the Financial Times on Wednesday.
Interest rate increases in the US and UK
Interest rate increases are also expected in the United States and the United Kingdom this week. The Federal Reserve, the US central bank, is likely to make a small rate increase, according to experts, taking into account the bankruptcies of two regional banks earlier in March. These bankruptcies were partly due to higher interest rates.
In the UK, a rate hike will be decided on Wednesday. According to economists, inflation figures show that such an increase is urgently needed. Inflation in the country was unexpectedly high at 10.4 percent. Prices of food and non-alcoholic beverages rose by as much as 18 percent in February, the largest increase since 1977.