Cost of living set to rise with European Central Bank hikes interest rates

DUBLIN: Social life began to see the repercussions of central banks raising interest rates as part of measures to curb inflation. With the increase in interest rates, there will be an increase in electricity, diesel, vegetables, internet, hotel and air fares. The war in Ukraine, the lockdown in China and the crisis facing energy supply are all factors that increase the price rise.

Inflation weakens the economy and increases unemployment. So a spike in inflation puts not only central banks, consumers and businesses in a crisis, but also governments.

The central bank lends money to commercial banks, and commercial banks lend money to households and businesses. All these have to pay interest and these charges depend on the Central Bank’s interest rate. If the ECB raise the interest rate, the interest rate on loans given by other commercial banks will also rise.

It will also raise the cost of personal loans, vehicle loans, credit cards, and mortgages, making consumers less likely to take them. And the companies that offer loans also think twice about lending.

The central banks of Sweden, Norway, Canada, South Korea and Australia also raised interest rates. The US Federal Reserve has raised rates twice by 0.75 percent, the biggest increase since 1994. The Bank of England also raised interest rates.

Central banks have exclusive powers to issue notes and coins, manage foreign reserves, grant emergency loans and ensure the health of the financial system. The central bank’s main task is to ensure price stability, so controlling inflation is essential.