Responding to calls for a 0.5% increase next month, the ECB’s Governing Council said the key interest rate for the 19-member monetary bloc would increase by 0.25% further, and possibly a bigger increase planned for September. . The rise in July will raise the key deposit rate for commercial banks from -0.5% and raise the lending rate from 0% to the Bank of England equivalent key interest rate to 1%. The monthly inflows of e-funds into the economy, known as quantitative easing, will also stop in July, although the ECB’s existing loan stock will remain at around ς 8 trillion, or 63% of the eurozone’s annual gross domestic product. At a meeting in Amsterdam, the board said inflation had become a “major challenge” and that inflation forces had “widened and intensified”. According to its latest forecasts, inflation will average 6.8% this year, well above the 5.1% projected in March, before falling to 3.5% in 2023 and 2.1% in 2024. . Officials said they were concerned that Russia’s invasion of Ukraine had hit “confidence, consumption and investment”, leaving the eurozone with weaker growth prospects. “It disrupts trade, leads to material shortages and contributes to high energy and commodity prices. “These factors will continue to affect confidence and limit growth, especially in the short term,” the ECB said. However, it was unlikely that the invasion would plunge the eurozone into recession, he said, adding: “The conditions are in place for the economy to continue to grow due to the continued opening up of the economy, a strong labor market. [government] support and savings during the pandemic “. Inflation in the eurozone rose to more than 8% last month and could peak in the third quarter before a slow decline forecast by the ECB. High energy prices have been blamed for most of the inflation boom. Food prices were also rising rapidly while the underlying price increase, which filters out volatile food and fuel prices, was well above 2%. Hetal Mehta, a senior European economist at Legal & General Investment Management, said there was a high risk the eurozone could slide into recession next year. Subscribe to the daily Business Today email or follow the Guardian Business on Twitter at @BusinessDesk He said Italy would be the most vulnerable to higher interest rates as its debt-to-GDP ratio rose to 160% during the pandemic. “The European Central Bank is in a challenging position, with inflation extremely high, growth slowing and the labor market tightening. “We now see the risk of a recession in the eurozone of up to 60% for the second half of 2023,” Metha said. “Higher ECB interest rates and Italian borrowing costs call into question the sustainability of Italian debt. “As a result, the ECB should be more ‘predictable’ in raising interest rates, much more than we have seen from other central banks, such as the Federal Reserve or the Bank of England.”
