The reference interest rate of the European Central Bank (ECB), the normal refinancing price charged to banks in the eurozone, has been raised by another half percentage point (0.5 point) to 2.5%, the institution made on the basis of Frankfurt known.
He also said in black and white that deteriorating borrowing costs will have to continue and that from March the ECB will start shedding government bonds and other securities it holds, pushing interest rates into high , especially those borne by taxpayers. and governments.
Such a move will increase public spending and make it difficult to reduce the deficit, for example by increasing cuts in other expenditures and/or increasing revenues, in light of the active rules of the Stability Pact.
Sharp interest rate hikes
On interest rates, the ECB even says in Thursday’s note that “it expects to raise them significantly because inflation remains too high and is expected to stay above target for too long”.
Interest rates in the eurozone are thus at their highest since the end of 2008, the world was plunged into a serious financial crisis and on the way to a serious economic and government debt crisis.
Until July of this year and for about six years (since March 2016), interest rates in the Eurozone were at 0%.
With the start of Russia’s war against Ukraine, inflation spiraled out of control, driven by the exorbitant cost of energy and food, shooting to levels never seen before in the history of the Euro and currently remaining close to 10% .
This value is five times higher than the formal and legal target of the authority led by Christine Lagarde (inflation around 2% in the medium term).
For this reason, the Council of the ECB, which includes all the governors of the central banks of the eurozone, including Mário Centeno, “decided today to raise the three key ECB interest rates by 50 basis points. [0,5 pontos percentuais] and, based on the substantial upward revision of the inflation outlook, expects to continue raising it”.
This year, after a long period of zero interest rates, the ECB started raising interest rates by 0.5 points in July, and while inflation continued to rise, it rose by another 0.75% in September and repeated this dose in September. November.
Now it is rising, but more slowly, as analysts and decision-makers in the world’s capital markets had expected. Inflation remains high, but shows signs of peaking.
In addition, economic activity and employment in some sectors are starting to falter, and there are also fears that this sudden and aggressive rise in interest rates will create serious problems of bad debt for households, businesses and continued actions to destroy bank accounts again .
As stated, the ECB’s Governing Council “believes that interest rates still need to rise significantly at a steady pace to reach levels constraining enough to ensure that inflation returns to the target of 2% in due time.” average deadline”.
In other words, “maintaining restrictive interest rates will reduce inflation over time by curbing demand, and will also protect against the risk of a sustained upward shift in inflation expectations.”
The ECB will start paying off the national debt in March
“The key ECB interest rates are the main tool available to the Governing Council to set the course of monetary policy”, but the Eurosystem’s central banks and the ECB have bought and bought huge amounts of public and private debt. on their balance sheets to keep interest rates at very low levels for many years, in some cases even zero or negative.
Portugal, a highly indebted country, was one of the countries that benefited most from these asset purchase programs.
But this time of interest at an equilibrium price for eurozone governments will end from March next year. The ECB will stop making some “reinvestments” in government bonds and private bonds.
The Frankfurt entity reveals that “the ECB Council also discussed today the principles for normalizing the Eurosystem’s holdings of securities for monetary policy purposes” and the idea is that “from March 2023, the portfolio of the asset purchase program (asset purchase program – APP ) will decrease at a measured and predictable pace, as the Eurosystem will not reinvest all maturing securities [que chegam à maturidade]🇧🇷
“The decline will average €15 billion per month until the end of the second quarter of 2023 and the subsequent pace will be determined over time”, and “at the February meeting the ECB Governing Council will discuss the detailed disclose parameters for the winding down of APP positions,” the institution said in a statement.
(updated)
Read more at Dinheirovivo.pt
Source: DN
