ECB Raises Interest Rates as Inflation Battle Continues

The European Central Bank (ECB) raised interest rates for the eighth consecutive time, continuing its fight against high inflation.

"A peak is now clearly in sight and the debate is slowly shifting to how long rates will need to be kept at current levels," analysts noted. Victor Trokoudes, founder and CEO of fintech firm Plum, commented on the rate hike, stating, "The latest rate hike doesn't come as any surprise, given Christine Lagarde's comments that rates would need to be increased again to contain inflation." He further speculated that another increase may follow in July, despite falling inflation and the eurozone being in recession. Trokoudes added, "Many will be hoping that the market's prediction of 3.75 per cent as the terminal rate is correct, given the pressure rising rates are placing on businesses and consumers."

Trokoudes acknowledged the ECB's efforts to combat inflation, mentioning that they have raised interest rates by a total of 400 basis points over the past year. However, he pointed out that inflation remains more than three times the ECB's target, and core inflation has proven to be stubborn, only falling to 5.3% from 5.7%. Trokoudes stated, "Underlying inflationary pressures have built up and proved harder to reverse in contrast to initial expectations when inflation was supposedly transitory."

Considering the eurozone's recession and the challenge of conquering inflation without hindering economic recovery, Trokoudes remarked, "The ECB has a very tricky balance to strike." He credited Christine Lagarde for providing clarity in her communication compared to the Bank of England, which has enhanced her and the ECB's credibility.

However, Trokoudes also highlighted the ongoing cost of living challenges faced by European citizens. He suggested that Europeans explore savings accounts with higher interest rates, as rising ECB rates provide an opportunity to make their money work harder in the short term. Trokoudes advised people to review household bills and renegotiate prices or find cheaper alternatives to alleviate financial burdens. He emphasized the importance of good budgeting and making savings work as hard as possible, as even small savings can significantly lighten a budget.

Furthermore, Trokoudes emphasized the value of long-term investments in protecting against the erosion of money's value caused by high inflation. He recommended investing manageable amounts regularly through euro-cost averaging to mitigate market fluctuations and maintain a consistent portfolio.

By fLEXI tEAM