ECB leaves interest rates unchanged after ten increases - experts fear economic weakness

ECB leaves interest rates unchanged after ten increases - experts fear economic weakness

After the European Central Bank (ECB) increased interest rates in the last ten consecutive meetings, the ECB Council has now decided to leave the key interest rate in the euro area unchanged at 4.5 percent for the time being. Many economists had expected this decision because inflation in the euro area had recently fallen. At the same time, however, concerns about the economy are growing, which could have led the ECB to make the decision. The deposit rate that banks receive for parked funds remains at 4.0 percent, the highest level since the monetary union was founded in 1999.

In recent years, the ECB has tried to contain inflation and aim for stable prices at an inflation rate of 2.0 percent. After inflation temporarily reached double digits as a result of Russia's war of aggression against Ukraine, the ECB tried to curb developments with a series of interest rate increases. Higher interest rates make loans more expensive and thus counteract high inflation. However, more expensive loans also put a strain on the economy, as loan-financed investments become more expensive.

The economic outlook for the euro area has also deteriorated. The ECB now only expects gross domestic product to grow by 0.7 percent this year, while an increase of 0.9 percent was predicted in July. Germany in particular, Europe's largest economy, will actually shrink slightly this year, according to the federal government and many economists.

The Middle East crisis is another uncertainty factor that could impact energy prices and thus also have an impact on the economy and the financial sector. It is eagerly awaited how ECB President Christine Lagarde will comment on the economy and the future interest rate path. The question arises as to whether it leaves open the possibility of further interest rate increases or whether it provides a more neutral outlook, emphasizing data dependence.

The ECB's decision not to raise interest rates any further for the time being is having an impact on the market and the financial sector. Lower interest rates can increase demand for credit, which can have a positive impact on consumption and investment. At the same time, however, lower interest rates can also lead to higher inflation. The development of the economy and inflation will therefore continue to need to be closely monitored in order to assess possible further decisions by the ECB.

Source: According to a report by www.tagesschau.de