The European Central Bank (ECB) announced on Thursday that it has raised its key interest rate to a record 4.0%. This decision, made amidst substantial uncertainty as the economy slows, marks the tenth hike in a 14-month effort aimed at tackling an inflation level above 5%. The move received strong backing from the majority of the Governing Council.
The ECB’s policymakers, using model-based simulations and expert surveys, proposed maintaining a deposit facility rate between 3.75% and 4.00% for the long term. This strategy is intended to reduce inflation to 2%, aligning with the central bank’s target.
In the backdrop of this decision, long-term bond yields have seen a significant increase as central banks around the globe reduce or cease purchases. This trend has been partly offset by slightly eased borrowing costs, a result of Federal Reserve officials downplaying further rate hikes.
The global financial landscape is also being impacted by geopolitical tensions, with concerns over the escalating Israel-Hamas conflict affecting major borrowers such as Italy. Despite these challenges, the ECB’s latest move indicates its determination to curb high inflation rates and stabilize the European economy.
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