The European Central Bank raised key interest rates by 0.5 percentage points on Thursday. This was the first rise in more than a decade and significantly exceeded expectations as it accelerated the fight against record high inflation.
Consumer prices in euro-using countries, driven by rising energy and food prices, soared at the fastest rate of their generation, reaching 8.6% year-on-year in June.
Earlier, banks telegraphed that they intended to raise interest rates by a quarter point.
But on Thursday, the bank’s board said, “We have decided that it is appropriate to take a larger first step on the path to normalizing the policy rate than was shown at the previous meeting.” This was due to the “latest assessment of inflation risk” and the new approval. A policy tool designed to ensure the effective communication of monetary policy.
Inflation has hit almost every part of the world in recent months, but the situation facing bank president Christine Lagarde needs special attention. It is about balancing the weaknesses of the economies of 19 countries with the debt burden.
Raising interest rates was an important next step in ending the era of the European Central Bank’s ultra-loose monetary policy support. Banks have already completed a trillion euro program to buy bonds. And eight years later, the end of the negative interest rate policy aimed at encouraging banks to lend generously ended abruptly. The deposit rate that banks receive to deposit overnight with the central bank has been raised from minus 0.5 percent to zero.
Banks said further rate hikes would be appropriate at future meetings, but the decision to raise rates higher than expected meant “advancing” withdrawal from negative interest rates, and future decisions would be at each meeting. Meaning that it will be done in. It depends on the data. Banks are targeting inflation of 2% in the medium term.
Policy makers are walking the delicate line between easing price pressures and pulling the European economy into recession.
Banks last raised rates in July 2011, but policymakers turned around just four months later as the region’s bond market crisis worsened.
