Interest rates in the EU remain almost at record levels, like the European Central Bank (ECB) decided on Thursday in Frankfurt. The key interest rate remains unchanged 4,5 percent, which is the second highest level since the introduction of the euro.
Only per year 2000 The key interest rate was briefly higher and was then 4,75 percent. The banks continue to receive an interest rate of four percent on deposits with the central bank. This is likely to mean continued high costs for variable and new loans for households. On the positive side, savings account holders can now expect slightly higher savings interest rates.
The ECB's decision on interest rates came as no surprise and was in fact expected. Inflation in the euro area has recently weakened surprisingly significantly, while at the same time concerns about the economy are growing. Before this decision, the US Federal Reserve (FED) left the key interest rate in the USA unchanged for the third time in a row and promised interest rate cuts for the coming year.
Despite the expectations of many economists, that the ECB will also cut interest rates next year, ECB President Christine Lagarde recently warned about this, already proclaiming a victory over inflation. It is still appropriate, to stay vigilant, until the inflation rate reaches the medium-term target of two percent again.
Inflation in the euro area fell noticeably in November. According to Eurostat, consumer prices rose by 2,4 percent compared to the same month last year, after 2,9 percent in October. The ECB aims for stable prices in the medium term with an inflation rate of 2,0 percent across the entire currency area.
After an unprecedented series of ten consecutive interest rate increases to combat high inflation in October, the monetary authorities stopped tightening interest rates for the first time. Higher interest rates make loans more expensive, which can dampen demand and counteract high inflation rates. At the same time, more expensive loans are a burden on the economy, as credit-financed investments become more expensive.
The eurozone economy is showing signs of weakness. According to Eurostat, economic output shrank in the third quarter 0,1 percent compared to the previous quarter. In the second quarter, the gross domestic product was (BIP) one 0,2 percent grown, after stagnation at the beginning of the year. According to estimates by the federal government and economists, the German economy is expected to grow for the year as a whole 2023 shrink slightly.