Inflation in the euro zone rises to record highs. A course correction should now remedy the situation. For the first time in eleven years, the European Central Bank has announced an increase in the key interest rate. The controversial purchases of securities are also to be dropped. Experts say: Too late.
The European Central Bank, which is under pressure from extremely high inflation, wants to pull the plug after more than a decade of extremely loose monetary policy. After a council meeting in Amsterdam, the ECB announced that it intends to raise interest rates by 0.25 percentage points in July. It would be the first increase since 2011. The prerequisite for this is to stop the bond purchases, which are controversial, especially in Germany. This is now scheduled for July 1st. Further interest rate increases are then planned until the end of 2022.
The euro central bank expects another step up at the September meeting. It is still unclear how strong he will be. However, a larger step is appropriate if the medium-term inflation outlook remains poor or even bleak until then, the currency watchdogs said. After September, the ECB expects smaller upward moves. The key interest rate in the euro zone is 0.0 percent, the penalty rate for deposits from commercial banks at the ECB is minus 0.5 percent.
"The end of securities purchases was overdue and is at least three months too late," said Friedrich Heinemann from the Mannheim research institute ZEW. "The ECB has always fought inflation that was too low quickly and with all available means. On the other hand, Europe's central bank is very slow in countering the inflation that is now much too high." There is fear of a new euro debt crisis, which paralyzes the ECB and damages its credibility.
For years, following the global financial crisis, the Greek sovereign debt crisis and the coronavirus pandemic, the ECB has been in emergency mode - with interest rates still at historically low levels and bond purchases once intended to fuel more inflation. In total, the central bank currently has public and private debt instruments in the amount of around five trillion euros through several programs.
The ECB is aiming for an inflation rate of two percent as the ideal value for the economy. For years, inflation was far too low from the ECB's point of view. In the meantime, however, the picture has changed radically, with high energy prices recently being fueled by the war in Ukraine. Food and many raw materials as well as preliminary products for industry have also become significantly more expensive. In May, inflation in the euro area was 8.1 percent - a record. According to experts, if this only solidifies via a so-called wage-price spiral, it will become increasingly difficult to get back to more normal areas. Interest rates have already been raised significantly in the USA and Great Britain.