The European Central Bank raised interest rates by more than expected on Thursday as concerns about runaway inflation trumped worries about growth, even while the euro zone economy is suffering from the impact of Russia’s war in Ukraine.
The ECB raised its benchmark deposit rate by 50 basis points to zero percent, breaking its own guidance for a 25 basis point move as it joined global peers in jacking up borrowing costs. It was the ECB’s first rate increase in 11 years.
Policymakers also agreed to provide extra help for the euro zone’s big debtor nations – Italy among them – with a new bond purchase scheme. Sources told Reuters they did not expect to use it imminently despite a selloff in Italian bonds.
Ending an eight-year experiment with negative interest rates, the ECB also lifted its main refinancing rate to 0.50%, and promised another hike, possibly as soon as its Sept. 8 meeting, with more to follow later.
ECB President Christine Lagarde said a clear deterioration of the inflation outlook and unanimous backing for the anti-fragmentation instrument justified the bigger move.
“Price pressure is spreading across more and more sectors,” Lagarde said. “We expect inflation to remain undesirably high for some time.” She listed driving factors including higher food and energy costs and wage rises.
“We decided on balance that it was appropriate to take a larger step towards exiting from negative interest rates.”
Source: Reuters
Leave a Reply