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14 June, 2024
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Fighting high interest rates is Europe's main challenge

Why lowering inflation matters for your wallet


The European economy faces significant challenges amidst the current geopolitical crisis, which threatens its global position. Despite its unique characteristics compared to other major economies like the US and China, the primary focus remains on ensuring the economic security of European citizens, which is now under scrutiny after many years of stability.

High interest rates, driven by inflation, are taking a toll on the European economy, hampering investment and growth. It's crucial to swiftly return inflation to the target of 2% to alleviate pressure on interest rates.

The European Central Bank (ECB) is closely monitoring inflation sources to understand the dynamics and plan future actions. While goods and food inflation have eased, energy inflation is a concern due to recent tensions, though summer has shielded households for now. Services sector adjustments are slow but monitored to maintain progress.

The upcoming ECB meeting in June, influenced by April data, is pivotal. Positive first-quarter growth estimates and early April inflation figures set an optimistic tone for discussions. Markets anticipate a potential rate cut, though maintaining current rates is also plausible given encouraging data.

Europe's economic competitiveness is hindered by high interest rates, exacerbated by a concentration of capital in low-risk investments. Streamlining investment options is crucial to boosting investor confidence and redirecting funds from deposits to European investment schemes.

The imbalance in deposits and investment deficits explains banks' reluctance to raise interest rates for depositors. Until investment prospects improve, banks will prioritize profits over depositor interests, highlighting the need for corrective measures to stimulate investment.

Cyprus  |  Europe  |  economy

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