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Despite the economic slowdown, the ECB continues to raise interest rates


Europe is not done with interest rate hikes. Thursday, February 2, the European Central Bank raised its rates by half a point, to 2.5% for the deposit rate. This is the fifth straight hike since July 2022, bringing the total tightening to three points. This is – by far – the fastest monetary tightening since the creation of the ECB twenty-five years ago.

Read the interview: Article reserved for our subscribers “We have no choice but to raise interest rates”

And the monetary institution, which oversees the twenty countries of the euro zone, does not intend to stop there, as it indicates from the first sentence of its press release. “The Governing Council will continue to raise interest rates significantly at a steady pace. » It is even more precise, pledging now to raise its rates by another half point at its next meeting on March 16. Such pre-emption of the next decision is a relatively unusual practice. And after ? “We will still have a long way to go, we still have to move forward”, explains Christine Lagarde, its president. Clearly, interest rates will continue to rise, although the pace will depend on the state of economic conditions.

No question therefore of any “pivot” or slowdown for the ECB. Inflation is certainly decelerating – it was 8.5% in the euro zone in January, after peaking at 10.1% in November 2022 – but “it remains far too high”continue The guard. It therefore fully assumes: interest rates will have to reach a “restrictive level” and stay there long enough to bring inflation back to its 2% target.

Lower energy prices

This is enough to worry those who fear that the ECB will bring about a violent halt to the economy, while the latter is showing signs of weakness: growth in the fourth quarter was 0.1% in the euro zone, admittedly avoiding recession, but only just. “The ECB is trying to control inflation by slowing down the economy, annoys Jordi Schröder Bosch, of the association Positive Money Europe. Let’s be clear: this decision means a reduction in wages, an increase in unemployment and a threat to investments in the green transition. »

The ECB President replies that the European economy has held up quite well so far. “In Europe, we like to beat our guilt, (…) but growth remained positive in the fourth quarter. We should celebrate the fact that we are not in negative territory. » The economy is indeed proving to be more resilient than economists predicted two or three months ago, largely thanks to the positive surprise of falling energy prices.

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