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ECB raises the interest rate to 1.5%, the highest since 2009

The European Central Bank (ECB) raised interest rates for the third meeting in a row last week and signalled an intention to start mopping up cash from the banking system to fight record-high inflation.

The ECB has been undoing years of aggressive stimulus in a matter of months after being blindsided by a sudden surge in prices - the result of higher energy costs caused by Russia’s invasion of Ukraine and the economy’s uneven reopening after the pandemic.

The central bank of the 19 countries that share the euro raised the interest rate it pays on bank deposits by 75 basis points, taking it to the highest level since 2009 at 1.5%.

‘The Governing Council took (this) decision, and expects to raise interest rates further, to ensure the timely return of inflation to...2%,” the ECB said.

But the ECB repeated plans to keep reinvesting proceeds from the €3.3bn pile of bonds it bought under its Asset Purchase Programme (APP) in the last eight years, when it thought that inflation was going to stay low.

‘The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time,’ the ECB said.

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