The European Central Bank (ECB) continues to raise key interest rates. They are expected to rise by 0.25 percentage points, the central bank announced on Thursday after the May interest rate meeting of the ECB Governing Council.

Christian Siedenbiedel

Editor in business.

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This is the seventh rate hike in a row. The central bank is thus shifting to a slightly lower path of interest rate hikes. It follows the US Federal Reserve, which also announced an interest rate hike of 0.25 percentage points on Wednesday. This raises the ECB deposit rate, which also plays a certain role in savings interest rates, to 3.25 percent.

The central bank wants to continue fighting inflation, which is still far from its target of 2 percent. True to the motto issued by Bundesbank President Joachim Nagel: If inflation is so persistent - then monetary policy must be even more persistent.

Inflation had risen to 7 percent

Until the end, the financial markets had been discussing whether interest rates would now rise again by 0.5 or only by 0.25 percentage points. On the one hand, it had been argued that the ECB could proceed a little more cautiously out of consideration for the recent bank turbulence - on the other hand, the European statistical office Eurostat had just announced on Tuesday that inflation had risen again somewhat in April. And to a whopping 7 percent.

On the other hand, however, core inflation in the euro area, i.e. inflation excluding strongly fluctuating prices such as energy and food, which is currently being closely monitored by monetary policy because it says more about longer-term trends, fell slightly from 5.7 to 5.6 percent for the first time in a long time. So there were both positive and negative signals for the monetary authorities.

While the consequences of last year's energy crisis are slowly migrating out of inflation rates, there are still many products in the supermarket whose prices continue to rise. For example, while fruit and vegetables became cheaper compared to March, the prices of bread and other cereal products continued to rise. In any case, people do not have the impression that inflation is over.

Jari Stehn, the chief European economist at investment bank Goldman Sachs, had said before the decision that it could well be "close" whether the central bank would raise interest rates by 0.25 or 0.5 percentage points. While in the meantime many thought that the ECB Governing Council members had already prepared themselves for a small interest rate hike, doubts arose again when the figures on the increased inflation were published.

In a recent interview, ECB Chief Economist Philip Lane expressed the view that further interest rate hikes were necessary to bring inflation back close to the ECB's target of 2 percent in the medium term. But he had not commented on the magnitude of the rate hikes. ECB Executive Board member Isabel Schnabel said in an interview that an interest rate hike of 0.5 percentage points was not yet off the table.

What does this mean for savers?

As the ECB's deposit rate rises, so do short-term savings rates, but this also depends on competition between banks. Above all, individual banks, which are particularly keen to attract new customers, have usually rushed ahead with offer interest rates for overnight money after the central bank's interest rate hikes. This is likely to be the case again now. The best rates are currently slightly above 3 percent, but their payment is usually limited to a few months. Inflation is still eating away at what savers get from the banks.

The Internet portal Verivox has compared consumer interest rates and comes to a sobering conclusion. While the providers at the top of the market competed for savings deposits with ever higher interest rates, at least 222 banks and savings banks in Germany still paid no overnight interest at all. Slowly, there should be movement in the market.

Construction interest rates, on the other hand, tend to be based on the yield on the ten-year German government bond, which is currently just over 2.2 percent. On average, borrowers currently pay 3.8 percent interest on construction money, according to surveys by the consumer platform Biallo. In any case, this is unlikely to be much less so quickly: The credit intermediary Interhyp expects interest rates on construction money between 3 and 4 percent for the current year.

Interest rates on installment loans have also risen sharply recently. Anyone who takes out an installment loan has to pay more than twice as much interest today as it did a year ago, reports Verivox. A year ago, consumers who took out an installment loan through the platform received their loan at an average interest rate of 3.15 percent. Today, an average borrower would have to pay 6.49 percent interest.