Today promises to be an exciting day for enthusiasts. The European Central Bank (ECB) announces an interest rate hike for the first time in 11 years. The intention is that we will all notice something of this in Europe, but the increase has already been partly processed and only a larger step can surprise. The question is whether it will come.
“It is more exciting than expected,” says ING macro-economist Bert Colijn. “They are still debating whether the increase will be 0.25 percentage point or 0.50 percentage point.” The difference seems peanuts, but in macroeconomic terms it is a lot.
The chances of it becoming the bigger move only increase as inflation picks up. On the other hand, higher interest rates can also just push us into a recession. “That is precisely why there is a greater chance that a bigger step will now be taken,” says Colijn. “If you’re already in a recession, it’s harder to raise interest rates further.”
You could therefore argue that as a central bank it would be better to do nothing if an increase in interest rates could lead to a recession. “The main task of the central bank is to keep prices stable. They now want to show that they can turn a knob for that,” says Nick Kounis, macro-economist at ABN AMRO. “Whether that is successful remains to be seen.”
In normal economic times – which have long since passed – you can reduce inflation by raising interest rates. But the current inflation is mainly caused by other than regular economic mechanisms, such as corona and the war.
Higher interest rates prevent more gas from flowing our way
As a result, things have become scarcer and more expensive. That is why the ECB has waited a long time to turn the interest rate knob. “If interest rates go up, the gas from Russia really won’t suddenly flow this way again,” Kounis sums up.
Klaas Knot, the president of De Nederlandsche Bank (DNB), already hinted in May that an interest rate increase would be greater than 0.25 percentage point if inflation continued to rise. “We can’t say anything about the positions now,” said a spokesperson for DNB. “The silence period starts from a week before the meeting.”
It is far from quiet around the meeting of the European central bank directors, and that is not surprising. Because eventually the ECB’s interest rate policy seeps through to all of us – everyone who has, borrows or lends money, in the form of savings. That’s why there’s a lot of speculation going on.
The interest rate decision will be taken at 2.15 pm announced, half an hour later the ECB gives text and explanation. The ECB’s policy rate is now 0.5 percent negative. If interest rates go up, borrowing becomes more expensive and saving actually yields more. To some extent, the market has already anticipated this.
The European Central Bank will also announce a new program to prevent the southern European countries from getting into serious trouble again.