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WorldEconomy

ECB to reduce interest rate hikes and outline strategies to drain funds

European Central bank to widen its attempts to contain inflation, is prepared to pause the recent pace of interest-rate hikes.

News Desk
By News Desk Published December 15, 2022
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ECb to reduce interst rate hikes
Image Credits: Business Recorder

On Thursday, the European Central Bank is scheduled to increase interest rates for the fourth time in a row, although most likely by a lesser percentage point, and announce plans to drain money from the financial system to combat rogue inflation and control prices that are rising throughout the 19 nations that use the euro, the ECB has started hiking rates at an extraordinary speed. This increase is being brought by rising fuel prices since Russia attacked Ukraine and the restarting of the economy following the COVID-19 outbreak.

After being taken off guard by the abrupt increase in prices, the central bank for the eurozone increased the rate it pays on bank deposits from -0.5% to 1.5% in just three months. This ended a decade of super easy money.

In line with the U.S. Federal Reserve’s shift in policy on Wednesday, a poll of analysts predicted that the European Central Bank will increase interest rates by half a percentage point after 75-basis-point increases at each of its two previous meetings however to convince investors that it is still committed to combating inflation, which may continue to rise above the ECB’s 2% objective through 2025, the ECB is anticipated to warn of further higher borrowing costs in the future, similar to the Fed.

The probability that the ECB will increase the rate it pays on bank deposits to 2% on Thursday before raising it to approximately 2.75% by March was 75%, according to the money markets and according to the most recent survey of economists, that rate would be reached by June.

Additionally, the ECB is anticipated to announce intentions to cease substituting maturing bonds from its 5 trillion euro portfolio, reversing years of asset purchases that have made the central bank the largest creditor of numerous eurozone countries.

The action, which drains liquidity out of the financial system, is intended to allow long-term lending prices to increase and follows a similar move made by the Fed earlier this year.At 13:15 GMT, the European Central Bank (ECB) will announce its policy choices, and at 13:45 GMT, ECB President Christine Lagarde will hold a press conference.

TAGGED: ECB, European Central Bank, European Central Bank interest rate, European Union
By News Desk
The author is the news desk team.
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