ECB Looks For Ways To Tackle The Dwindling Economic Situation With Rate Hikes

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The European Central Bank (ECB) has been looking for a way of dealing with the increasingly worsening economic situation, spurred by the conflict in Ukraine and other factors.

Head of the Australian National Bank, Robert Holzmann, while commenting on the issue, stated that the ECB is considering whether to go on with another increase in interest rate in September.

“The economy will grow less strongly, the forecasts point in this direction, that has made us somewhat cautious,” Holzmann stated.

He added that the ECB will be monitoring the situation and likely make a decision in the autumn. Then they can decide whether to add another 0.5% or go lower than that.

The ECB Wants To Tackle Inflation Levels

Additionally, the ECB is also looking to prevent any prospect of higher inflation from becoming a reality among the general public. On Thursday, the ECB increased its benchmark deposit rate by 50 basis points to 0%. This is the bank’s first increase in over a decade as it follows other global peers to increase borrowing costs.

The ECB’s Governing Council stated that taking the first larger step towards curbing inflation is the right thing to do as it tries to normalize its policy rate. The institution is known for keeping rates historically low, and in negative territory since 2014. But it is currently dealing with the coronavirus pandemic and the region’s sovereign crisis. These issues have impacted the EU’s monetary system, which can lead to hyperinflation f the right measures are not used.

The Euro Gained Slightly After Recent Interest Rate Hike

The euro surged to a session high of $1.0257 following the news of the interest rate hike, while the 10-year Italian bond yield also rose after the news. It extended gains on Thursday after Prime Minister Mario Draghi resigned.

Softening forward guidance and hiking rates by 50 points indicates that the ECB believes that the window for a series of rate hikes will close quickly.

Additionally, the ECB believes that the recent hike in interest rate will support the medium-term target of anchoring inflation and preventing any level of escalation in the future. The ECB says its inflation target in the medium term is still 2% and is working towards maintaining the low level.

About Ali Raza PRO INVESTOR

Ali is a professional journalist with experience in Web3 journalism and marketing. Ali holds a Master's degree in Finance and enjoys writing about cryptocurrencies and fintech. Ali’s work has been published on a number of leading cryptocurrency publications including Capital.com, CryptoSlate, Securities.io, Invezz.com, Business2Community, BeinCrypto, and more.