The European Bank announced the increase in interest rates to 2.5% and a quantitative easing program
| Gal Rekover, Devar News
After the central banks in Great Britain and the United States did so, the European Bank is also raising its rate by 0.5 percentage points. In the case of the European Central Bank, too, the increase is a decrease in pace, after a recent increase of 0.75 percentage points.
According to the announcement of the bank’s board of directors, interest rates will still have to rise significantly in order to meet the 2% inflation target. As of November, inflation in the Eurozone stands at 10% on an annual basis, down from 10.6% in October.
According to the forecast of Eurostat, the statistics office of the European Union, inflation in the Eurozone is expected to decrease to 6.3% in 2023 and 3.4% in 2024.
In addition to raising the interest rate, the council announced a quantitative reduction plan that will begin in March. The European Central Bank will slow the pace of its bond purchases so that starting in March, the work program of the asset purchase program will be reduced by 15 billion euros per month.
The meaning of the matter is that the Eurozone countries may suffer increases in the price of debt raising. The demand for bonds that the central bank injects into the market leads to a reduction in the demand for yield, i.e. a reduction in the price for the countries, and gives investors confidence that they will be able to sell the bonds if necessary, which increases the moderating effect on the cost of raising the debt.
The monetary reduction, which includes the interest rate policy and the purchase of bonds, comes against the backdrop of threats from a recession that is expected to hit the continent next year. The Eurostat forecast predicts growth of 0.5% in 2023, which is actually economic stagnation.
Read the full article on the Devar news site