ECB Christine Lagarde has defended the latest interest rate hike against criticism. The step is robust in three different scenarios, Lagarde said according to Euronews. The central bank raised the deposit rate by 0.25 percentage points to 2.25 percent – the first increase since September 2023.
Critics fear that higher interest rates could further burden the economy and that inflation might not return to the ECB’s two percent target until 2027. Higher rates make loans more expensive for companies and consumers, dampening demand, but also benefit savers if banks pass on the higher rates.
The decision is set against the backdrop of an inflation surge following the Iran war. Inflation in the eurozone stood at 3.2 percent in May, well above the ECB’s two percent target. In Germany, inflation was 2.6 percent, tempered by the fuel discount. In January – before the war began – the rate was 1.7 percent.
Savings rates had already risen recently as the hike was expected. According to comparison portal Verivox, nationwide available fixed-term deposits with a two-year term averaged just over 2.3 percent, while overnight money accounts yielded 1.3 percent. Some banks lured new customers with up to four percent on overnight money for a limited time.
Source: de.euronews.com
