Even though inflation has continued to be strong, the European Central Bank announced a hike rate of 0.25% again on Thursday, and investors are wondering if this will be the last rate increase of the year. The ECB has raised rates by 400 basis points since July of last year, making this the fastest-tightening cycle in the history of the institution.

ECB Decides On Hike Rates

Given that economic data suggest that the main interest rate is faltering and that loan demand has fallen to a historic low,  people expected that the ECB will most likely raise its primary interest rate (the deposit rate) to 3.75%.

The rapid increase in rates may have a negative impact on the expansion of loans in the euro region and, consequently, on economic activity. In a quarterly poll released on Tuesday, the ECB noted that “Firms’ net demand for loans fell strongly in the second quarter of 2023, dropping to an all-time low since the survey’s inception in 2003.”

Due to the euro zone’s less developed and liquid capital markets than those of the United States, banks dominate how the economy is financed. According to ECB Chief Economist Philip Lane, the tighter monetary policy is having a quick impact, especially on bank loans.

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Is Bitcoin Helping?

Headline inflation reached its lowest level to 5.5%, since the beginning of last year. However, core consumer prices—which exclude volatile items like food and energy—rose 5.5% from a year earlier, CNBC noted. In comparison, a 5.4% preliminary estimate and a measurement of 5.3% from May were recorded.

The ECB must walk a tight line if it is to persuade the markets that it will maintain rates at high levels for an extended period despite a dramatic slowdown in the economy. “The tone will remain hawkish, though. Inflation is still high and the ECB cannot be sure that rates are peaking yet,” Deutsche Bank’s Mark Wall concluded. 

And due to growing rates, people there are turning towards Bitcoin and other crypto for rescue. The Markets in Crypto Assets (MiCA) regulation’s establishment has given the European crypto industry a feeling of cohesion and direction. MiCA offers widespread concord where previously there had been regulatory uncertainty around crypto assets, forcing businesses and investors to contend with various regulatory regimes on a country-by-country basis.

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