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- The European Central Bank (ECB) recently brought an end to its long-running series of interest rate hikes, marking a new chapter for the eurozone economy.
- The ECB’s actions play a crucial role in shaping the European economy and are closely watched by economists, investors, and policymakers around the world.
Following the US Federal Reserve’s rate hike (25 bps), the ECB raised its policy rate by 50 bps. Both central banks noted in their press conference that their hawkish stance was nearing an end. However, the senior officials from both institutions asserted that the rate hikes would continue until the inflationary targets are met.
The interest rate in the Eurozone now stands at 2.5% and will be raised to 3% in the next announcement (March). ECB officials said that the next announcement will be followed by an evaluation of the economy and inflationary pressures.Prices had risen mainly due to the Euro energy crisis triggered after Russia’s war in Ukraine.
However, gas supply is relatively stable now and so are the risks threatening the Eurozone’s economic growth outlook are balanced now.
ECB will also reduce 15 billion from its 5 trillion balance sheet. The central bank had injects billions into the Eurozone economy during the peak of the pandemic and amid rising geopolitical tensions.
Will Selling Bonds And Monetary Policy Go Hand In Hand?
Selling its bonds is another monetary policy tool that the bank will use to tighten liquidity. The bank is doing so to combat inflation by slowing demand.The end of the ECB’s interest rate hikes comes as a welcome respite for eurozone businesses and consumers who have been grappling with mounting borrowing costs. The ECB’s recent action has also been a shot in the arm for the global financial markets that have been rattled by recent economic data and the ongoing Brexit uncertainty.
By adopting a more prudent approach to monetary policy, the ECB is helping to restore market stability and investor confidence in the eurozone.While the ECB’s move is a step in the right direction, it’s not without its own set of challenges and risks. The eurozone economy could become vulnerable to inflation, especially if growth continues to slow and labor costs rise.
Additionally, ongoing political uncertainties in the eurozone, including the unresolved Brexit negotiations, could also have a profound impact on the economy and the financial markets.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
