ECB Summary – 21 July 2022

After 11 years of a low-interest rate monetary policy, the European Central Bank finally decides to raise its benchmark interest rates by 0.50%.

President Lagarde surprised the markets by announcing this 0.50% increase. This decision was quite unexpected because according to previous statements, an increase of only 0.25% was largely expected.

This shows the ECB’s commitment to controlling inflation and also the fact that inflation has gone above the ECB’s forecasts, forcing them to take this more aggressive measure. Unfortunately, given that the economy is still in a fragile state, the likelihood of the economy suffering from stagflation, a mixture of stagnation and inflation, increases considerably.

They have given no indication about the future rise in the benchmark interest rate planned for September. This shows that they want to remain flexible and will act according to economic developments in the coming months.

Another big announcement was some details about the new tool to help countries with large debts, such as Italy which is currently facing a political crisis.

This tool aims to limit borrowing costs. They will buy bonds from countries that need them most to reverse rising cost trends for those countries. The scale of this support will vary from country to country.

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