As most market analysts expected, European Central Bank(ECB) has raised its interest rates again by another 25 basis points. Its President, Christine Lagarde, has announced this decision saying that they are rallying to maintain their battle against inflation.

ECB hikes rates again to hit 3.25%

The main policy rates have been hiked by 25 basis points bringing the total interest rates up by 3.25% in this economic shake-up. The decision by the ECB follows suit Yesterday’s U.S. Federal Reserve decision to hike the rates by another 25 basis points bringing its tally to 5%, the highest range since August 2007.

The European markets reacted to the news from the U.S. financial policymakers earlier today, dipping across almost all sectors as market analysts from the region also expected ECB to do the same.

Central banks have been hiking rates to bring down high inflation that most countries are battling with due to COVID economic disruption. The massive global lockdowns to battle the epidemic disrupted major supply chains, which have caused a crunch in global economics.

Currently, inflation stands at an average of 7% in the 20 countries that use the Euro for trade. That number is more than ECB’s 2% inflation rate target. However, today’s rate hike was lower than the previous ones, which foreshadows plans by the ECB to slow down the program of hikes. The same steps are expected from the U.S. Federal Reserve as it gave hints of pausing the hikes soon in its official statement.

The rising interest rates have resulted in higher profits for lenders, but on the other hand, it’s putting pressure on banks as some government bonds are losing value. However, the E.U. has been experiencing a stronger banking system resilience, unlike the U.S., which has seen the collapse of around 3 major banks collapse. 

However, only time will tell how long the battle against inflation will take. Keep watching Fintech Express for updates on Macro-finance and other fintech-related stories.