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ECB Raises Interest Rates for the First Time in 11 Years and Does It Harder Than Expected

The European Central Bank has raised interest rates for the first time in 11 years. That happened unexpectedly with fifty basis points instead of the predicted 25. The measure comes after inflation in the eurozone had risen to 8.6 percent.

 

The ECB surprises, however: it raises interest rates by fifty basis points and not with the expected mouse step of 25. This indicates that it wants to shift up a gear to combat inflation, which had risen to 8.6 percent in the eurozone. She also states in a press release that it is raising interest rates faster than expected due to a new assessment of inflation risks.

She estimates that the risk is higher than in previous months. The ECB was criticized for being late: central banks worldwide are already raising interest rates, for example, in the US, by 150 basis points.

Analysts are still looking forward to the press conference of ECB President Christine Lagarde. Will she provide more clarity about the next rate hike, and above all: what does she say about the widening interest rate spread with Italian debt securities?

It has been under fire since the resignation of Prime Minister Mario Draghi – coincidentally also her predecessor at the ECB – and stands at 2.3 percent. The ECB wants to avoid a new euro debt crisis at all costs and wants to use anti-fragmentation tools to do so. Perhaps Lagarde will provide additional details on this afternoon.

It has been since 2011 that interest rates were raised by the ECB, then also under the presidency of a Frenchman, Jean-Claude Trichet. For a cycle of a whole series of rate hikes, which is now expected, we have to go back to 2005-2008.

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