The ECB Increases their Base Rate
In a move to ‘stamp out’ inflation in Europe, the European Central Bank (ECB) have increased their base rate by 0.50%. This is a bold move for the ECB, who have not raised their rate since 2011. In contrast, the Bank of England have raised their base rate five times since December alone, most recently to 1.25% in June.
Why have The European Central Bank Increased their Rates?
Inflation is at a record high around the world and prices are soaring as countries are dealing with supply chain issues due to the Covid-19 pandemic and the consequences of Russia’s war in Ukraine. Last month, eurozone inflation reached a high of 8.6% – a long way from the target 2.00%. The ECB President, Christine Lagarde, has said inflation is expected to “remain undesirably high for some time.” This is perhaps the reason for the higher rate rise than expected. After last month’s ECB Forum in Sintra, economists had predicted a rate rise of 0.25%. A further increase is expected for September, which would push the base rate into positive figures.
What does this mean for savings rates?
An increase in the ECB’s base rate is good news for the European savings market, with commercial banks likely to pass on the rate rise to customers. This means that higher returns can be expected from Euro deposits. With inflation expected to continue rising for some time, interest rates on savings products will also be on the up.
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