Economic situation - ECB leaves key interest rate unchanged
The European Central Bank (ECB) has left interest rates in the eurozone unchanged for the second time in a row. The key interest rate remains at 4.5 percent following a decision by the ECB Governing Council, as announced by the central bank in Frankfurt.
The Federal Reserve had previously left the key interest rate unchanged in a range between 5.25 percent and 5.50 percent. At the same time, the central bank of the world's largest economy hinted at interest rate cuts in the coming year.
Rapid series of interest rate hikes
The Fed's decision-makers now expect an average key interest rate of 4.6 percent for the coming year. This indicates around three interest rate cuts in 2024. The high inflation rate in the US has fallen in recent months. Now Fed Chairman Jerome Powell and his colleagues want to see whether the current level is sufficient to keep high consumer prices in check in the long term. However, Powell warned that the battle against the high rate of inflation has not yet been won. The key interest rate in the USA is currently in the range of 5.25 to 5.5 percent. This is the highest level in more than two decades and the third time in a row that the Fed has paused interest rates.
Like the Fed, the ECB has also attempted to combat rising inflation with a rapid series of interest rate hikes. The ECB did not raise interest rates any further in October. The key interest rate at which commercial banks can obtain fresh money from the central bank is currently 4.5 percent. Higher interest rates make loans more expensive, which can curb demand and counteract high inflation rates. However, more expensive loans are also a burden on the economy because credit-financed investments become more expensive.
Growing concerns about the economy
Many economists now expect that interest rates will not be raised further for the second time in a row. The ECB and the Fed are aiming for stable prices in the medium term with an inflation rate of 2.0%. Inflation in the eurozone continued to weaken significantly in November. According to Eurostat, the statistics office, consumer prices were 2.4% higher than in the same month last year, compared to 2.9% in October. Last year, the inflation rate was still in double figures at times as a result of the Russian war of aggression against Ukraine.
At the same time, concerns about the economy are growing. In the third quarter, economic output in the eurozone shrank by 0.1% compared to the previous quarter. In the second quarter, gross domestic product (GDP) grew by 0.2% after stagnating at the beginning of the year. According to the German government and economists, the German economy will also shrink slightly in 2023 as a whole.
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- The Federal Reserve System, similar to the European Central Bank (ECB), has also implemented a series of interest rate hikes to combat inflation in the USA.
- Jerome Powell, the chairman of the Federal Reserve (Fed), highlighted that the battle against high inflation in the USA is not yet won, despite the recent decrease in inflation rates.
- The ECB, located in Frankfurt on the Main, and the Fed share a common goal of maintaining a medium-term inflation rate of 2.0%, known as the leitzins in some European contexts.
- In the context of the eurozone, the European Central Bank (ECB) has chosen to keep the key interest rate at 4.5% following a decision by the ECB Governing Council, as the Fed had done for the key interest rate in the USA.
- Economists are concerned about the impact of higher interest rates on the economy, as they make loans more expensive, which can curb demand, but also lead to increased burdens for consumers and businesses in the euroregion.
- The European Central Bank's (ECB) decision to leave interest rates unchanged echoes similar movements by the Federal Reserve System (Fed) in the USA, reflecting the shared concerns about inflation and the overall economic situation in both regions.
- The interest rate hikes by both the ECB and Fed are responses to the high inflation rates that have affected several economies, including the USA and the eurozone, and are efforts to ensure price stability and sustained economic growth.
Source: www.stern.de
