ECB raises key rates by 25 bps

Inflation in the Eurozone is still significantly high at 6.1 per cent and underlying price growth, which excludes food and energy, is only beginning to slow…reports Asian Lite News

The European Central Bank (ECB) on Thursday raised interest rates for the eighth time in a row and signalled further policy tightening, as it battles record-high inflation.

The ECB raised the key interest rates, the one banks pay to deposit cash at the central bank, by 25 basis points (bps), its highest level since 2001.

The central bank for 20 countries has now pushed up borrowing costs by a combined 4 percentage points in a year, its fastest pace on record, but a peak is now clearly visible and the debate is slowly moving to how long rates will required to be maintained at current levels.

“The Governing Council’s future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2 per cent medium-term target,” the ECB said.

According to ECB, inflation is likely to stay above its 2 per cent limit through 2025 and signaled once again at further rate hikes in the coming months.

Growth in the eurozone is stagnating and inflation has been cooling down for months on the back of lower energy prices and the sharp increase in key interest rates in the ECB’s 25-year history.

On Wednesday, the US Federal Reserve broke its string of 10 consecutive interest rate hikes, sending a powerful signal to investors around the globe that the ongoing tightening cycle across developed economies is nearing an end, but a little more US tightening is still expected.

However, inflation in the Eurozone is still significantly high at 6.1 per cent and underlying price growth, which excludes food and energy, is only beginning to slow.

“Staff have revised up their projections for inflation excluding energy and food, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation,” the ECB said.

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