ECB raises interest rates for the first time in 11 years
At a meeting in Amsterdam, the European Central Bank has announced that it will raise interest rates by 0.25% in July.
The euro zone interest rate will still remain negative, at -0.25%, but the ECB will end its long-running asset buying programme, in an attempt to reverse spiralling interest rates.
‘High inflation is a mayor challenge for all of us,’ the bank announced. ‘The governing council will make sure that inflation returns to its 2% target over the medium term. In May inflation again rose significantly, mainly because of surging energy and food prices, including due to the impact of the war.’
In May, inflation in the euro zone was an average of 8.1% while in the Netherlands, it was 8.8%, according to the CBS.
The last time the ECB raised interest was in July 2011, however the Bank of England and US Federal Reserve have already raised rates several times this year. The ECB said in a press conference that it may implement another 0.5% rise in September if interest remains high or rises even further.
The ING said that the central bank was ending ‘its long era of unconventional monetary policy’ and had ‘managed to find a compromise between the doves and the hawks’ – avoiding a 0.5% rise immediately but opening a door to doing this in September.
‘The era of net asset purchases will come to an end in three weeks, and the era of negative interest rates will come to an end before the autumn,’ said the ING in a reaction. ‘Simply put, the ECB just announced the end of a long era. Whether this will also be the start of a new era of continuously rising interest rates, however, is still far from certain.’
It is unclear what impact the decision will have on interest rates for savers and on mortgage rates, which have already risen since January. The NVM reported that house prices dropped by 2.1% on the last quarter, in the first three months of 2022, signalling that the Dutch housing market could be stabilising.
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