Four months after the Fed began its tightening cycle, the European Central Bank raised rates for the first time since 2011, which caused risk assets to decline.
The European Central Bank (ECB) ended the six-year period of its negative interest rate policy on Thursday by increasing borrowing costs for the first time in 11 years (NIRP).
The deposit facility rate, or the primary policy rate, was increased by the Frankfurt-based central bank by 50 basis points (0.5 percentage points), from -0.5 percent to zero. The hike exceeded the average increase of 25 basis points projected by analysts, and the ECB indicated that “further normalization” was imminent.
The central bank said that the decision is based on the back’s updated assessment of inflation risks: “Frontloading the exit from negative rates allows the ECB to make a transition to a meeting-by-meeting approach to rate decisions.”
The risk of economic union disintegration or disruptive fluctuation in bond rates across the common currency area will be countered by the ECB by implementing a fresh asset-purchasing program, according to the central bank. Recent increases in volatility on the bond markets of heavily indebted countries like Italy in comparison to German bonds are a hint that the European Union may be breaking up.
Four months after the U.S. Federal Reserve (Fed) began its tightening cycle, the European Central Bank (ECB) raised interest rates. Since then, the Fed has raised interest rates by 150 basis points, which has placed pressure on the market for assets.
The ECB’s decision to leave the NIRP is crucial since the unconventional practice of keeping borrowing costs below zero was seen by many as an indication that the established financial system was crumbling, which is a recurring topic among cryptocurrencies.
