European Central Bank raises interest rate, will it help Eurozone economy to stabilize?

At a time when the Eurozone has an increased inflation rate and the economy is going through a phase of weaker domestic demand, and dampening financial conditions, the European Central Bank (ECB) has increased its interest rate by 25 basis points. Consequently, the benchmark interest rate has gone to 3.75%. It was the consecutive ninth hike in the interest rate.

Inflation To Remain High?

Announcing the increase in the interest rate, ECB President Christine Lagarde said that the inflation rate would remain high for some time to come, though it would come down eventually. Banking experts have hoped that as the rate has increased now, the ECB will not hike the rate in September. But Lagarde said that the bank has an open mind and the decision will be taken keeping in mind the economic growth and inflation figure.

Ukraine War Fuels Inflation

Economists have predicted a mixed outlook for the 20 countries of the Eurozone. At present, it has the highest-ever inflation rate since its inception in 2000. The inflation rate in the U.K. has gone up y 5% and it is most likely to go further. The Russian invasion of Ukraine has caused gas and crude oil prices to soar and this has caused the inflation to flare up.

FAQs:

Q1:How much and why has the ECB raised the interest rate?
In an attempt to keep the inflation rate in check, the European Central Bank (ECB) has increased its interest rate by 25 basis points. Consequently, the benchmark interest rate has gone to 3.75%.

Q2:Will the ECB increase the interest rate again in September?
Banking experts have hoped that as the rate has increased now, the ECB will not hike the rate in September. But Lagarde said that the bank has an open mind and the decision will be taken keeping in mind the economic growth and inflation figure.