European Central Bank Raises Rates, Says Inflation Still Too High
The European Central Bank announced on Thursday the seventh-straight increase in its three key interest rates since July. At 0.25%, it was the smallest increase to date.
Speaking to reporters in Frankfurt, Germany, ECB President Christine Lagarde said that while inflation has dropped from its high of more than 10% in October, at 7%, it remains too high.
The bank said previous rate increases — all of which were one-half to three-quarters of percentage point — are being transmitted forcefully throughout the bloc’s financial industry. It is unclear, however, how they might be affecting the real economy.
Rate hike follows US increase
The ECB, the central bank for the eurozone — the 20-nation group that uses the euro as currency — announced the rate hike the day after the U.S. central bank, the Federal Reserve, raised its benchmark interest rate by a quarter point and indicated it could be its last increase for a while.
Lagarde gave no such indication Thursday, saying, “This is a journey. We have not arrived yet.”
An ECB press statement said the bank’s “future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium-term target and will be kept at those levels for as long as necessary.”
Costs still high
Inflation in the eurozone began surging last year, after Russia’s invasion of Ukraine significantly drove up fuel prices. Those prices have since moderated, but overall consumer costs remain high.
The interest rate hikes are having an expected effect on borrowing, Reuters reported, as eurozone banking data showed recent declines in loan demand from households and companies.
There are fears the interest rate hikes are affecting the eurozone’s economic growth, which, The Associated Press reports, was only 0.1% during the first three months of 2023.
Some information for this report was provided by the Associated Press, Reuters and Agence France-Presse.
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