ANP
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NOS News•today, 14:41•Amended today, 15:45
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The European Central Bank (ECB) raises interest rates in one fell swoop by half a percentage point, more than previously announced.
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The rate hike, the first since 2011, puts an end to an unusual eight-year period of negative interest rates. The ECB wants to curb the sky-high inflation with the sharp interest rate hike.
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In terms of size, the interest rate step is extraordinary, a similar measure of 0.5 percentage point or more only occurred during the financial crisis in 2008-2009 and during the dot-com crisis in 2001.
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The rate hike applies to all three key central bank interest rates. The interest rate of the deposit facility, whereby banks temporarily deposit money with the ECB, will go from -0.5 percent to 0 percent. The refi rate (the interest that banks pay to the central bank when they withdraw money) goes from 0 percent to 0.5 percent, and the lending rate from 0.25 percent to 0.75 percent
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Crisisinstrument
Together with the interest rate hike, the ECB is also presenting a new crisis instrument to counter the breakup of the eurozone as a result of interest rate developments. More specifically, this concerns the interest rates of the northern, strong euro countries such as Germany and the Netherlands on the one hand, and the southern, weak euro countries such as Italy on the other.
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The so-called Transmission Protection Instrument (TPI) is intended to dampen interest rate differentials between euro countries and, according to ECB President Lagarde, “is used in the event of unjustified, disorderly market developments that pose a serious threat to monetary policy across the euro area”. The ECB has unanimously approved the TPI, thus including the critics among central bankers who generally have reservations about settlements between euro countries.
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The interest rate decision is received in a controlled manner on the financial markets, because it is not really a surprise. Equity markets are rising slightly, as are bond market yields. Italian interest rates continue to rise, partly due to the political crisis that the country is now suffering from.
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