The ECB raises its key interest rate by 0.5 percentage points. Originally, it was expected that the ECB would increase interest rates by 0.25 percentage points. – It seems sensible. This is the same thing that other western central banks have done. Inflation in the EU is so high that it seems right, says Ola Grytten. He is a professor at the Department of Economics at the Norwegian School of Management. – Necessary to bring down inflation The corona pandemic and the war in Ukraine have led to higher prices for energy and other goods internationally. The central banks want low and stable inflation, but now it is very high both abroad and here at home. This is what the ECB is trying to slow down by raising the key interest rate today. The central banks in the USA and Norway set the key interest rate in June. “It is necessary to bring inflation down,” said US Federal Reserve Chairman Jerome Powell in June. Inflation means sustained inflation. In June, Statistics Norway announced that Norway has the highest price growth since 1988. In one year, prices had risen by 5.7 per cent – well above Norges Bank’s target of a 2 per cent price increase over time. – As we now assess the outlook and the risk picture, the key policy rate will most likely be raised further to 1.5 per cent in August, said central bank governor Ida Wolden Bache in June. When the European Central Bank now does the same, it hits 19 countries in the eurozone. Consequences for Norway That the European Central Bank will put further pressure on Norges Bank to do the same, Grytten said. – Norway has already raised interest rates, but the EU points out that interest rates will rise even higher, and then Norges Bank will probably have to follow suit, says Grytten. – If Norges Bank is to keep interest rates lower than others, we will have higher inflation and a weaker krone, and we cannot have that, the NHH professor elaborates. Affected countries with a lot of debt The ECB is facing a difficult balancing act – a rapid escalation of interest rates can curb inflation, but it can also contribute to negative economic development, the so-called recession. – When interest rates rise, it becomes less lucrative to invest and borrow money and more lucrative to save. This may mean that the economy will cool down, that economic growth will decrease and that it may and will be negative, says Ola Grytten. An interest rate increase is expected from the ECB in September. Not all EU countries tolerate this equally well. Higher interest rates make it even more difficult to repay loans for countries with large debts, such as Italy and Spain. Therefore, one expects that the ECB will come up with measures to protect the economies of these countries, writes the news agency Reuters.
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The European Central Bank (ECB) raises interest rates for the first time in 11 years – news Norway – Overview of news from different parts of the country
