Tuesday, July 16, 2024

The European Central Bank maintained interest rates on Thursday, signaling a shift in their strategy to combat inflation. Officials are now focused on determining how long they will need to keep rates high in order to achieve the central bank’s inflation target. The bank, which sets rates for the 20 eurozone countries, kept the deposit rate at a record high of 4 percent.

Despite expectations of persistently high inflation, the central bank noted a significant drop in inflation last month and some indicators of inflation have eased. Last month, policymakers had already hinted that they might hold interest rates steady after ten consecutive increases. In September, the annual inflation rate in the eurozone decreased to 4.3 percent from its peak of 10.6 percent a year ago. However, the central bank’s staff projected that the rate would not return to the 2 percent target until the third quarter of 2025.

Since July 2022, the European Central Bank has implemented its most aggressive monetary tightening measures to prevent high inflation caused by last year’s energy price surge. Interest rates were raised to the highest level in the bank’s two-decade history, and bond-buying programs aimed at stimulating the economy were reduced. This policy stance is now beginning to impact economic growth, as evidenced by a decrease in demand for loans and a contraction in business activity.

The bank acknowledged that previous rate increases have had a strong impact on financing conditions, which has subsequently dampened demand and helped reduce inflation. It stated that if interest rates remain at current levels for a sufficient period, inflation should return to target.

This month’s meeting took place in Athens, shortly after Greece’s debt was upgraded to investment grade by S&P, ending its 13-year classification as junk bonds.

Every year, the central bank holds its governing council meeting in a different eurozone country. This year, it coincided with the revival of the Greek economy, marked by low unemployment rates and strong growth in recent years. “Greece has made an impressive comeback from the pandemic,” said Christine Lagarde, the president of the European Central Bank, on Wednesday evening.

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