What happens if the ECB raises interest rates?

The ECB sets the cost at which banks obtain money. If it raises this, banks in turn raise rates on mortgages, loans and financing. Money becomes more "expensive", so households and businesses borrow less.

With fewer loans, spending and investment fall. Demand for goods and services drops, and sellers can no longer raise prices easily: inflation slows down. That's exactly the point of the move.

Mortgages and loans: those with a variable-rate mortgage see their payment rise; those about to take one out will find it more expensive. Example: on a €150,000 mortgage, a 1% rate hike can mean about €70-90 more per month.

Savings: deposit accounts and government bonds tend to offer higher returns, so keeping money "safe" pays a bit more. That's the upside of the hike.

The stock market often suffers when rates rise: companies pay more to finance themselves, future profits are "worth" less, and some investors shift money into bonds that have become more attractive.

It's a delicate balance: raising rates too much curbs inflation but risks choking growth into a recession; raising them too little lets prices run. That's why every ECB decision is watched so closely.