The European Central Bank has decided to raise key interest rates by 50 basis points (or 0.5 percentage points) to a range of between 2.50 and 3%, in line with what was expected and with what its moves earlier than December. The decision follows yesterday evening’s decision by the Federal Reserve, the American central bank, which in turn raised rates by half a point, bringing them up to a range between 4.50 and 4.75 per cent, the highest since September 2007.
The ECB has also already announced that a new 50 basis point increase in interest rates will be decided at the next ECB Governing Council meeting in March. Anticipating the next decision is part of a rather innovative communication strategy. Until now, the president of the ECB Christine Lagarde has always said that decisions are taken “meeting by meeting”, thus following the trend of the economy and inflation month by month. This approach has sometimes been criticized because it did not allow operators and financial markets to understand the overall direction in which European monetary policy was moving. Communicating the next decision in advance serves precisely to indicate a more precise path and thus make the action of the ECB more incisive.
These decisions come after months of even more intense and aggressive rate hikes, equal to 75 basis points, which were aimed at slowing down the economy and therefore also inflation, i.e. the increase in prices which is seriously affecting difficulties for families and businesses. Since November, the increase in prices seems less intense than in previous months and in January the trend was confirmed by the latest data released on Wednesday. This is probably why the Fed and the ECB have chosen to raise interest rates less markedly than in recent months.
