ECB Has Decided They Will Continue Increasing Interest Rates But At 50 Basis Points

ECB Has Decided They Will Continue Increasing Interest Rates But At 50 Basis Points

December 15, 2022 0 By Wiley McDermott

The European Central Bank (ECB) officials have made an announcement about their upcoming action on interest rates. The officials have announced that they will not stop increasing the interest rate hikes.

ECB to Continue Hiking Interest Rates

The teams at the ECB have confirmed that they will not stop increasing the interest rates. They want to keep increasing the interest rates until they are able to lower the inflation rates in the region.

The officials have confirmed that although the interest rate hikes would be at a slow pace, they will stick with increasing them on a regular basis.

Initially, the ECB had been increasing the interest rates by 75 bps on a monthly basis but they have decided to lower them. This is because as per the ECB, the inflation rate is close to hitting its peak.

This means that after hitting a particular level, the inflation rates may not rise over the particular level. They may start moving lower naturally, so they will not have to put in much effort of bringing it lower.

The inflation rates will run their course and will return to their natural numbers over the course of time.

This is a smart move from Europe as they seem to have taken a notice of the economic concerns in the US due to the constant hiking of the interest rates.

Things were looking out to be very promising for the US economy as the inflation rates were actually moving lower.

However, the US Feds kept hiking the interest rates increasing concerns over the rising potential of a recession.

According to several market experts and economists, the country is going to face a recession in the year 2023.

This means that the dollar will end up losing all the strength it has built in recent months. It will struggle to find strong ground in the year 2023 but will pick up only when the recession is over.

This means that their tactic of rising the interest rates has ended up backfiring and they are now in great trouble. The people in the United States are concerned about the upcoming situation of the economy.

European Central Bank is concerned by the Rate Hikes

While the ECB tries to control the inflation rates, it is also trying to boost its economy so it does not have to increase the interest rates.

At present, the largest holder of the government bonds is the Frankfurt institution and it is now eager to let go of the holdings.

One of the watchers from Natixis for the ECB, Michael Schumacher talked about the interest rate hikes. He confirmed that the ECB is going to hold a meeting in the running week.

They will decide in the meeting whether they are going to increase the interest rates by 50 bps or higher/lower.

He added that they are planning to do the same thing for the Quantitative Tightening in the upcoming year. For now, they do not have an exact detail about the tightening.

Once they have the day available for the Quantitative Tightening, they will make sure to report it right away.

Quantitative Tightening (QT), means that the ECB will proceed with introducing a reduction in the portfolio of bonds that is gigantic.

Performance of EUR

Due to the ECB’s latest announcement, the value of the euro has started to face a decline versus some of the major currencies including the USD.

In the European trading session on Thursday, the trading price of the euro experienced a 0.23% dip versus the dollar. Its price is currently sitting at a low of $1.0655 versus the dollar.

The euro has surprisingly surged 0.05% versus the trading value of the British pound. The European currency has recorded a 0.09% dip versus the yuan and a 0.08% dip versus the yen.