According to reports, as European inflation levels soared at the fastest speed of history, the European Central Bank has taken strong measures to control rapid inflation at the time of increasing concern about the slowdown in the economic slowdown. The zero interest rate policy of the euro zone over the past day has increased the key interest rates from 0.0% to 0.5%, and the interest rate hike exceeds expectations. At the same time, it also announced a new plan to buy the debt of the most vulnerable economy in Europe to deal with the dual pressure of inflation and slower economic growth to protect the euro zone currency alliance to the greatest extent.
The last rate hike of the European Central Bank was in July 2011. Just four months later, as the crisis in the region’s bond market intensified, the policy makers canceled this move.
At present, the challenges facing European economy are increasing daily: the energy crisis is approaching, the Russian and Ukraine War is protracted, and the internal political situation in Europe has become increasingly unstable, and many economists believe that economic recession is inevitable. The European Central Bank this time decided to mean that its monetary policy is more consistent with other central bank policies such as the Federal Reserve, and it also highlights the increasingly deepening of European Central Bank officials’ concerns about high inflation. The Fed is expected to increase the policy interest rate by 0.75 percentage points later this month to 2.25%-2.5%.
The increase in key interest rates has made the cost of loans in the euro zone higher, reducing loan demand to prevent inflation from continuing to rise. Although the current high inflation rate is not caused by excess demand, it is mainly caused by the shortage of goods. However, the European Central Bank’s move should effectively reduce the inflation expectations of the euro area and prevent wages-price spiral rising, that is, wages and prices soar rapidly.