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ECB says it can't slow down rate hikes due to fiscal stimulus


November, 25 2022
watermark Economic news

Isabelle Schnabel, a member of the executive council of the European Central Bank, said that the central bank is limited in the possibility of slowing down the pace of the key interest rate rise, since the measures of support by the governments of the eurozone countries to households and businesses will maintain high inflation for a long time.


Schnabel also noted that the monetary policy of European central banks can be calibrated on the basis of incorrect assumptions about the imminent decline in inflation. And this underestimation of inflation may hide huge risks for regulators.


The adoption of economic incentives by European countries means that the ECB will have to raise rates higher (possibly to a restrictive level) in order to return inflation to the 2% target. At the moment, inflation in the eurozone in October reached a record 10.6% in annual terms. However, budgetary measures may further increase inflationary pressure in the medium term, which will force the European regulator to raise rates to levels higher than those that would be required in the absence of incentives. 


Recall that the ECB raised all three key interest rates by 75 bps at a meeting in October. The base interest rate on loans was increased to 2%, the deposit rate to 1.5%, and the rate on margin loans to 2.25%. Since July of this year, the ECB has raised key rates by a total of 200 bps.


Experts expect that at the December meeting the rate will be raised from 1.5% to 2%.


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Foreign exchange trading carries a high risk of losing money due to leverage and may not be suitable for all investors. Before deciding to invest your money, you should carefully consider all the features associated with Forex, as well as your investment objectives, level of experience, and risk tolerance.