The European Central Bank decided to raise interest rates by 25 basis points again, and inflation is expected to remain high for a long time

The European Central Bank held a monetary policy meeting on the 27th and decided to raise the three key interest rates in the euro zone by 25 basis points.

The European Central Bank announced on the same day that it will raise the main refinancing rate, marginal lending rate and deposit mechanism interest rate to 4.25%, 4.50% and 3.75% respectively from August 2. Since the start of the rate hike process in July last year, the ECB has raised interest rates nine times in a row, with a total of 425 basis points.

The European Central Bank said that although some inflation indicators in the euro zone are currently slowing down, inflationary pressures are still high. ECB President Christine Lagarde said, “While some indicators are trending lower, overall underlying inflation remains high, due to the persistent impact of past increases in energy prices on headline prices. While most indicators of longer-term inflation expectations are currently at 2 % or so, but some indicators are still high and need to be closely monitored.”

The announcement said that the inflation rate in the euro zone is expected to fall further this year, but may exceed the medium-term target of 2% for a long time. The ECB will use inflation data as a basis to get the euro zone’s key interest rate high enough to be restrictive and keep it there if necessary to push inflation back down.

Bolstered by persistently high interest rates, business demand for loans in the euro zone fell by the most on record in the second quarter, according to a survey this week. Demand for home loans, consumer loans, and home loans also declined. This suggests that the ECB’s year-long process of raising interest rates is affecting the region’s economy. Lagarde warned that the economic outlook for the euro zone is highly uncertain. “The near-term economic outlook for the euro area has deteriorated, mainly due to weak domestic demand. High inflation and tighter financing conditions are holding back spending. This is weighing on manufacturing output in particular, which has also been held back by weaker external demand. Housing and Business investment is also showing signs of weakness. The services sector remains more resilient, especially in sectors such as tourism. But momentum in services is slowing. The economy is expected to remain weak in the short term.”

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