European Central Bank Faces Criticism for Timing of Key Interest Rate Increase

Markus Demary from the German Economic Institute (IW) has warned that the European Central Bank’s (ECB) renewed key interest rate increase comes at a bad time and criticized the ECB for its late intervention. “The ECB has decided to remove inflationary pressure from the economy and is accepting a recession for the sake of price stability,” said the IW expert for monetary policy and financial markets to the editorial network Germany (RND).

“The key interest rate increase of 0.25 basis points comes at an unfavorable time because there is already a recession trend,” warned Demary. “If the ECB had noticed the rising inflation rate in time during the first wave of the corona pandemic and not been caught off guard by it, this last interest rate step could have been avoided.”

The senior economist for monetary policy at the IW expects that the banks will quickly pass on the increase in key interest rates to their customers. “Companies will have to pay more for loans,” he told the RND. They were already paying more for energy, raw materials and wages anyway. The increased interest rates would now come into play. “Companies will therefore postpone planned investments,” he said. “Property buyers will also have to pay more for loans. Only savers benefit: retirement provision is worthwhile with such high interest rates.”

CDU politician warns of consequences for households, companies and consumers

CDU politician Mathias Middelberg warns: “The ECB’s interest rate decision to moderately increase the key interest rate by 0.25 percentage points is a decisive signal to combat the continued high inflation rate in Europe. However, the decision puts further budgetary pressure on Federal Finance Minister Lindner because he has to expect even higher interest expenses.”

This also applies to the economy, warned Middelberg: “Companies in Germany will also be able to refinance themselves at worse conditions,” he told the RND. But private households would also feel that loans are becoming more expensive. “It is all the more important that the federal government strengthens Germany as a business location with clever measures and does not further weaken it through expansionary spending desires.”

The SPD chairman in the Bundestag’s finance committee, Michael Schrodi, told the RND: “With its decision, the European Central Bank is resolutely continuing its fight against inflation, which is extremely important for sustainable economic growth in Europe in the medium and long term.” At least worry It comes as some relief that the most recently reported inflation figures in Europe showed a decreasing trend despite their high level. “From our point of view, it should be noted that monetary policy measures have a long-delayed effect and that a possible turning point in inflation developments is recognized in good time,” said the SPD politician. “We are concerned that the current high level of interest rates is leaving clear marks on our economy.”

SPD politician speaks of major failures

For Markus Herbrand, the financial policy spokesman for the FDP parliamentary group, the ECB’s decision “shows very clearly that the shortcomings of over a decade cannot be made up for in one year,” he told the RND. “Even though the inflation rate has now been halved since its double-digit peak, the road back to normality is still a long one.” It is regrettable that the ECB only came to its senses so late. “The rush of cheap money without risk has inevitably led to undesirable developments and almost uniquely high inflation rates, which we now have to fight with great difficulty,” criticized the FDP politician.

“The ECB should make further interest rate increases dependent on economic developments in the EU,” demanded Herbrand. “It is crucial for the long-term positive development of the economy and private households that growth prospects and credit costs are in balance.”