the ECB goes all out against inflation

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The European Central Bank (ECB) goes with everything and has announced the largest interest rate hike in the history of the eurozone. 0.75 points to suddenly put interest rates at 1.25%. All with a very clear objective: to try to put an end to a completely triggered inflation.


No brake to fight inflation. The ECB had several options on the table and has opted for the most aggressive of those proposed. It is not for less, since inflation in Spain is at 10.4%. And in Europe it is not much better, since it stands at 9.1%. Unfortunately, the announcement of the precipitous rise in interest rates will not improve things much in the short term. For this 2022, the ECB calculates that inflation will close at 8.1%.

The biggest rise in 24 years. Since the creation of the eurozone, the euro countries have never experienced such a precipitous rise in rates. After more than a decade where rates had not even touched, the ECB has suddenly decided to change its strategy. This will have a direct impact on the economy, driving up variable mortgages and making credit more expensive.

The ECB has decided to raise rates a decade later.  This is how the economy will change from top to bottom

And more will come. Christine Lagarde, president of the ECB, has assured that this rise will not be the last we will see in the coming months. “The rates will continue to rise until inflation is not too high.” This means that until the central bank achieves its objectives, rates will continue to rise. It should be understood that interest rates are a strong counterweight to inflation.

Inflation until 2024. From a transitory inflation we pass to a prolonged inflation, Lagarde has defined. For 2023 they calculate that this will remain at 5.5% and it will not be until 2024 when it will moderate to 2.3%.

The ECB explains that tourism has helped boost economic activity and that if the cost of energy were to drop, the pressure would also be reduced. They are two factors that are difficult to predict, but the truth is that it seems that it is taking longer than necessary. If at the beginning of the year the ECB thought that in 2023 we would grow by 2.1%, now it has reduced it to 0.9%.

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Towards recession and an increasingly weak euro. Raising interest rates so much has a huge risk, as it could lead to a recession, lower purchasing power for citizens and ultimately to a weaker euro, as is already being seen these weeks compared to the dollar.

The ECB considers that the eurozone will still continue to grow next year, although it will do so less than expected. It is not for less, the ECB has adopted a tough position to fight inflation and it will bring consequences.

Image | Eric Chan

The European Central Bank (ECB) goes with everything and has announced the largest interest rate hike in the history of…

The European Central Bank (ECB) goes with everything and has announced the largest interest rate hike in the history of…

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