The European Central Bank (ECB) decided today to raise its key interest rates. The deposit facility rate now stands at 2.5%, the main refinancing operations rate at 2.65%, and the marginal lending facility rate at 2.9%.
Florian Heider, Scientific Director of the Leibniz Institute for Financial Research SAFE, comments:
“The elevated inflation rate in the euro area in August made today’s interest rate hike necessary. However, today’s decision does not automatically mean that further rate hikes will follow. The ECB must interpret the mixed signals correctly and make its next decisions dependent on how the situation develops.
On the one hand, energy prices are driving inflation. On the other hand, core inflation and services inflation have declined slightly suggesting that underlying price pressure remains manageable.
So far, a major oil shock and pronounced second-round effects have failed to materialize. Nevertheless, the situation remains tense. In particular, the new Iranian exclusion zones around the Strait of Hormuz pose a risk of higher energy prices and, with them, another surge in inflation. At the same time, the ECB must monitor potential tensions in sovereign bond markets. High yields increase governments’ refinancing costs and negatively impact economic growth.
In view of rising consumer prices, the ECB is maintaining its price stability mandate by tightening monetary policy. This decision could put a strain on German companies, which are currently enjoying a slight economic upturn.”
Prof. Dr. Florian Heider
Scientific Director, Co-Director Department "Financial Intermediation"
