The European Central Bank (ECB) recently implemented strategies to increase the interest rate to tackle inflation. Despite a decline in the economy, they focused on increasing the interest rate by 2% or more.

Plans To Tackle Inflation

In August, the inflation rose to over 9%, passing the ECB mark of 2% in a two-year prediction. This resulted in the ECB increasing the rates continuously. They also made a proposition to the government to reduce utility bills. 

These utility bills have skyrocketed ever since the war between Russia and Ukraine. With a high interest rate and high utility bills, it would increase the cost of living.

On Thursday, the ECB increased the deposit rate to 0.75% to fight inflation. However, a proposal by committee members urged for another increase in price to tackle this inflation. A member stated it would take a long time to tackle inflation at this rate, so it should be increased.

Reports from sources showed that the rate would have to be critically high to deal with inflation and bring it down. These measures would be implemented if inflation doesn’t reduce from 9% to 2%.

Due to privacy policy, these sources remained anonymous. They said this increase in interest would happen during the time of the central bank’s appointment. This appointment is to take place at the end of the year to project inflation.

Implementations In Place

The ECB views the stats of inflation at 2.3% presently. However, the rate decreased to 2% after gas prices were considered. So many factors are being considered to bring down the rate and keep it there.

Talks of a confined boundary have been brought to tackle the inflation issue. The governor of Dutch Central Bank supported this idea and was the first to speak openly on it. Most banks did not see the need to increase interest rates at the time because inflation was still maintainable.

Reports show that policymakers are preparing for a decline in the economy due to this inflation. There has been a fall in the economic growth as a weaker growth was recorded with regards to last year. 

However, the labor market and forces have dealt with this to tone inflation slightly. Most policymakers have drawn peace from these attempts by the labor market.

Discussions have begun about the amount in Euro the ECB was to disburse to bank reserves. This was to cover up for the increased deposit rate policy placed on banks by the ECB.

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