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Thursday, September 29, 2022

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    European Central Bank opts for historic rate hike amid surging inflation

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    The European Central Bank (ECB) raised its three key interest rates by 75 basis points on Thursday, a historic move as eurozone inflation hits a new high and a war-driven energy crisis creates new risks for the entire region.

    “The interest rates on the main refinancing operations, as well as the marginal lending facility and deposit facility, will be increased to 1.25%, 1.50%, and 0.75%, respectively,” the bank said in a statement.

    The bank raised rates by 50 basis points in July for the first time in over a decade, as annual inflation in the eurozone reached 8.6% in June, far exceeding the ECB’s 2% target.

    In August, annual consumer inflation in the Eurozone reached a new high of 9.1%.

    “Soaring energy and food prices, demand pressures in some sectors as the economy reopens, and supply bottlenecks continue to drive up inflation,” the bank explained.

    It warned that price pressures have spread across the economy, implying that interest rates will rise further in the near future as “inflation remains far too high, likely to remain above target for an extended period.”

    Inflation is expected to average 8.1% in 2022 and 5.5% in 2023, according to revised projections.

    The bank also raised its eurozone growth forecast to 3.1% in 2022, from 0.9% in 2023 to 1.9% in 2024.

    The bank also stated that the Russia-Ukraine conflict was affecting business and consumer confidence.

    “After a rebound in the first half of 2022, recent data point to a significant slowdown in eurozone economic growth,” the bank said.

    “Very high energy prices are reducing the purchasing power of people’s incomes, and supply bottlenecks are still constraining economic activity,” it added.

    The bank also stated that the Russia-Ukraine conflict was affecting business and consumer confidence.

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