“Will European Central Bank follow the US Federal Reserve?”, Vasyl Yurchyshyn (Razumkov Centre, Ukraine)

The European Central Bank (ECB) decided to sharply raise base interest rates (from September 14, 2022, by 75 basis points (bps)) — to 1.25%, for the second time in the last two months (previously — on July 27, by 50 bps). The main factor behind this increase is high inflation (its average rate in 2022 is expected to reach 8.1%), as well as the need to reduce the lag of the interest rates of the Euro zone behind the US rates (diagram “Base interest rates”).

International experts are convinced that the ECB will have to continue the policy of raising rates, as current inflation and projected inflation next year (5.5%) far exceed the target level of 2% (ECB’s main duty).

Meanwhile, further emphasis on price stabilisation in the Euro zone may be complicated by the need to promote economic growth, i.e. the ECB will have to decide on its priority — to curb inflation (with increased risks of economic slowdown, and therefore, possible unemployment growth), or to prevent recession due to expensive energy resources. 

Read more here.