The ECB and interest rates
The European Central Bank (ECB) is the central bank of the countries that use the euro. Its main mission is to keep prices stable, and its main tool is interest rates.
What an interest rate is
It is the price of money: what it costs to borrow or what you earn for lending. The ECB sets the official rates at which it lends to banks, and that influences all the others.
What it wants to achieve
The ECB aims for inflation close to 2% over the medium term. To get there, it adjusts rates:
- If prices rise too much: it raises rates. Credit gets more expensive, people spend and invest less, and inflation tends to fall.
- If the economy is weak and inflation is low: it lowers rates. Credit is cheaper and spending and investment are encouraged.
How it affects you
- Variable-rate mortgage: changes through the Euribor, which follows rate expectations.
- New loans: tend to cost more when rates rise.
- Savings: accounts and deposits usually pay more when rates are high.
- Stock market: rate changes often influence share prices.
When it decides
The ECB's Governing Council meets several times a year to decide on rates. These meetings are often in the news, because markets react to what is decided and to what is hinted for the future.
It does not act alone
Rates do not fix everything: their effects take months to show, and inflation also depends on energy, raw materials and the international situation.
The ECB raises rates to slow prices and cuts them to boost the economy. That reaches your wallet through mortgages, loans and savings.
Informational and educational content. Not financial advice.