The European Central Bank (ECB) has raised its interest rates by half a percentage point. And as it now looks like, interest rates will rise again by that percentage in March, the central bank has already announced. This is necessary to curb inflation, which has risen sharply since the outbreak of war in Ukraine.
With their intervention, policymakers in Frankfurt are repeating their December interest rate hike. At that time, the ECB also raised its interest rates by half a percentage point. Three-quarters of a percentage point was added to the two previous interest rate decisions.
The idea behind the interest rate hikes is that borrowing will then become more expensive. People and companies will eventually spend less money. In this way, the ECB hopes to curb demand in the economy and to ensure that prices do not rise so fast.
Deposit rate to 2.8
The announced interest rate hike by the ECB was already expected by experts. President Klaas Knot of De Nederlandsche Bank (DNB), which is one of the policy makers at the ECB, had also recently said very explicitly that interest rates should be raised by half a percentage point now and in March. He also warned that more rate hikes are likely to be needed after that.
Due to the new interest rate decision, the so-called deposit rate, the interest that banks pay on money that they temporarily store at the ECB, will return to 2.5 percent. That is the highest level since 2008.
Savings rates slowly rising
For consumers, the higher interest rate is noticeable, for example, when taking out a mortgage. Due to the higher interest rates of the ECB, banks such as ING and ABN AMRO can also slowly raise their savings rates again.
The ECB also confirmed on Thursday a previously announced plan to slow down government and corporate bond purchases. The central bank no longer bought up extra loans, but reinvested the money when they were repaid. From March, the ECB will reinvest 15 billion euros less and until the end of June that amount will be spent on new bonds every month.