ECB's Decision of Raise Interest Rates by 50 BP.

 

The Governing Council of the European Central Bank (ECB) decided to raise its three key interest rates by 50 basis points1. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and deposit facility will be increased to 3.50%, 3.75% and 3.00% respectively, with effect from 22 March 2023

 

The three key interest rates of the European Central Bank (ECB) are the interest rate on the main refinancing operations, the interest rate on the marginal lending facility and the interest rate on the deposit facility.

 

The main refinancing operations provide liquidity to banks and are used to steer short-term interest rates. The marginal lending facility provides overnight credit to banks from the central bank. The deposit facility allows banks to make overnight deposits with the central bank.

 

• The Timeline of ECB.

 

Certainly, here's a brief overview of the history of the European Central Bank (ECB) and its key milestones:

 

1992: The Maastricht Treaty establishes the European Union (EU) and sets the goal of creating a single European currency. The treaty also establishes the ECB as the central bank for the Eurozone, which consists of countries that use the euro as their currency.

 

1998: The ECB is officially created as an independent institution headquartered in Frankfurt, Germany. Its primary objective is to maintain price stability in the Eurozone by controlling inflation.

 

1999: The euro becomes the official currency of the Eurozone, and the ECB assumes responsibility for conducting monetary policy in the region.

 

2002: Euro banknotes and coins are introduced, and the ECB becomes responsible for issuing them.

 

2008: The global financial crisis hits, leading to a recession in many parts of the world, including the Eurozone. The ECB responds by implementing a range of unconventional monetary policies, such as quantitative easing and negative interest rates, to stimulate economic growth and prevent deflation.

 

2012: The ECB announces the Outright Monetary Transactions program, which allows it to purchase the government bonds of struggling Eurozone countries in order to stabilize their economies.

 

2015: The ECB launches a quantitative easing program, in which it buys large amounts of government bonds and other securities in order to inject liquidity into the Eurozone economy and boost inflation.

 

2016: The United Kingdom votes to leave the EU in the Brexit referendum, sparking concerns about the future of the Eurozone and the EU as a whole. The ECB responds by maintaining its accommodative monetary policy stance and implementing additional measures to support the Eurozone economy.

 

2020: The COVID-19 pandemic hits, causing a severe economic downturn in the Eurozone and around the world. The ECB responds with a range of measures, including a Pandemic Emergency Purchase Program to purchase government bonds and other assets, and targeted longer-term refinancing operations to provide cheap loans to banks.

 

• The Policy of the ECB's Interest Rate.

 

The policy of the European Central Bank's (ECB) interest rate is one of its primary tools for achieving its mandate of maintaining price stability in the Eurozone. The ECB sets the interest rate on its main refinancing operations, which are the loans it provides to commercial banks in the Eurozone.

 

When the ECB lowers its interest rate, it becomes cheaper for banks to borrow money from the central bank. This can encourage banks to lend more money to businesses and individuals, which can stimulate economic growth and inflation. Lower interest rates can also make it less attractive for investors to hold euros, which can lead to a weakening of the currency and boost exports.

 

On the other hand, when the ECB raises its interest rate, it becomes more expensive for banks to borrow money from the central bank. This can lead to a reduction in lending and borrowing, which can slow down economic growth and inflation. Higher interest rates can also make it more attractive for investors to hold euros, which can lead to a strengthening of the currency and reduce exports.

 

The ECB's interest rate policy is set by its Governing Council, which meets regularly to review economic conditions and determine the appropriate course of action. The ECB aims to maintain inflation in the Eurozone at just below 2% over the medium term. This means that the ECB may adjust its interest rates to ensure that inflation stays within this target range.

 

It's worth noting that the ECB also has a deposit rate, which is the interest rate that banks receive for depositing money with the central bank. This rate can influence the amount of money that banks are willing to lend and can also affect the exchange rate of the euro.

 

 

• ECB Raises its Interest Rate, but Stock Goes up. Why?

 

If the European Central Bank (ECB) raises its interest rate, it is generally expected that the stock market will decrease, as investors may find it more attractive to invest in less risky fixed-income securities rather than stocks. However, there could be several reasons why the stock market may go up in the short term despite an increase in interest rates.

 

One reason could be that the increase in interest rates is smaller than expected or has already been priced into the stock market. For example, if the ECB announces a rate hike that was already widely anticipated, the stock market may have already adjusted to this news, and investors may have shifted their portfolios accordingly.

 

Another reason could be that investors believe that the increase in interest rates is a sign that the economy is performing well and that corporate profits are likely to improve. In this case, positive economic news may outweigh the negative effects of higher interest rates, leading to an increase in stock prices.

 

It's also possible that specific industries or companies within the stock market may be benefiting from the rate hike. For example, banks and other financial institutions may see an increase in profitability as interest rates rise, as they can charge higher interest rates on loans and other products.

 

Overall, while an increase in interest rates by the ECB would generally be expected to have a negative impact on the stock market, there may be various factors at play that could lead to an increase in stock prices despite the rate hike. It's important to keep in mind that short-term fluctuations in the stock market can be influenced by a wide range of factors and may not necessarily reflect broader economic trends or long-term market expectations.

 

• The Relationship btw ECB and Korea.

 

The relationship between the European Central Bank (ECB) and the Republic of Korea is primarily based on economic and financial cooperation. While the ECB is the central bank for the Eurozone, the Republic of Korea has its own central bank, the Bank of Korea, which is responsible for monetary policy and financial stability in the country.

 

One area of cooperation between the ECB and the Republic of Korea is in the field of international finance and monetary policy. The two entities may collaborate on issues such as exchange rate management, financial regulation, and macroeconomic stability. For example, the ECB and the Bank of Korea may participate in international forums such as the G20 or the International Monetary Fund (IMF) to coordinate their policies and address global economic challenges.

 

Another area of cooperation between the ECB and the Republic of Korea is in the field of trade and investment. The European Union (EU), of which the Eurozone is a part, is a significant trading partner for the Republic of Korea, and the two entities may work together to strengthen trade relations and promote economic growth. The ECB may also play a role in supporting the euro's exchange rate, which could have an impact on the Republic of Korea's exports to the Eurozone.

 

• ECB's way to be Governed.

 

The European Central Bank (ECB) is governed by a set of institutions and bodies, including the Executive Board and the Governing Council. The Governing Council is the main decision-making body of the ECB, responsible for formulating monetary policy and ensuring the effective functioning of the Eurosystem.

 

The Governing Council consists of the six members of the ECB's Executive Board, as well as the governors of the national central banks of the Eurozone countries. The governors of the national central banks serve rotating terms, with each governor holding a seat on the council for a period of five years.

 

The President of the ECB serves as the chair of the Governing Council, and is responsible for presiding over meetings and representing the ECB in its external relations. The other members of the Executive Board also hold voting rights on the council, and are responsible for overseeing specific areas of the ECB's operations, such as monetary policy, financial stability, and banking supervision.

 

The Governing Council meets regularly to review economic and financial developments in the Eurozone, and to determine the appropriate course of action to maintain price stability and support economic growth. This may include setting interest rates on the ECB's main refinancing operations, providing liquidity to the banking system, and taking other measures to ensure the smooth functioning of financial markets.

 

• 5 Interesting Facts. 

 

The ECB was established in 1998 in Frankfurt, Germany, as part of the European Union's efforts to create a common currency and monetary policy for the Eurozone. The ECB is responsible for maintaining price stability and supporting economic growth across the Eurozone countries.

 

The ECB is one of the world's most influential central banks, with significant power over monetary policy and financial stability in Europe. Its decisions can have a major impact on the global economy and financial markets.

 

The ECB has a unique structure compared to other central banks, with a governing council that includes the governors of the national central banks of the Eurozone countries. This structure is intended to promote cooperation and coordination among the central banks and ensure that the ECB's policies are aligned with the needs of all member states.

 

The ECB is also responsible for banking supervision in the Eurozone, through its supervisory arm known as the Single Supervisory Mechanism (SSM). The SSM oversees the largest banks in the Eurozone, with the goal of ensuring that they operate safely and soundly and that they do not pose a threat to financial stability.

 

The ECB has a massive balance sheet, with assets totaling over 7 trillion euros as of 2021. This includes a variety of holdings such as government bonds, corporate bonds, and loans to banks. The ECB's balance sheet has grown significantly in recent years as a result of its monetary policy measures aimed at supporting the Eurozone economy and financial system.