The European Central Bank (ECB) in Frankfurt am Main increases the key interest rate to 2.0 percent. Compared to the previous increase, this is a significant increase of 0.75 percentage points.
With its decision on Thursday, the ECB is reacting to the record inflation in the euro area. With its interest rate hikes, the ECB wants to make loans more expensive in order to curb demand and thus counteract high inflation rates. The Governing Council assumes that further rate hikes will follow.
ECB President Christine Lagarde recently reaffirmed the determination of the central bank in the fight against high inflation. “We will do what we have to do. That means raise interest rates in the next few meetings,” said Lagarde. If the ECB does not fulfill its mandate to ensure price stability, “it would damage the economy much more”.
The key interest rate was last at 2.0 percent in March 2009. After much hesitation, the Governing Council of the ECB raised interest rates in the euro area for the first time in eleven years at its meeting on July 21. The second increase followed on September 8th – for the first time in the history of the central bank by 0.75 percentage points. For a long time, the ECB had interpreted the high inflation as temporary and only started raising interest rates later than, for example, the US Federal Reserve.
Inflation in the euro area rose to a record high in September, driven by high energy and food prices. Compared to the same month last year, consumer prices increased by 9.9 percent. It was the highest value since the euro was introduced as book money in 1999.
