FRANKFURT, Germany (HPD) — The European Central Bank on Thursday again made a major interest rate hike aimed at reining in inflation, the fastest pace of rate hikes in the euro’s history, raising questions about how far it intends to raise interest rates. reach the bank in the face of the looming recession threat.
ECB President Christine Lagarde told reporters that the eurozone economy will weaken early next year. She added that “inflation is lowering people’s real incomes and raising business costs” and is holding back spending and output.
The 25-member governing council meeting in Frankfurt raised its benchmark interest rates by three-quarters of a percentage point, matching its record rise last month and adopting the same strategy of the Federal Reserve, the US central bank, which raised rates on three quarter points for the third time in a row last month.
“Inflation remains too high and will remain above target for an extended period,” the ECB said in a statement.
In just three months, the European bank has raised rates for the 19 countries of the euro zone by 2 percentage points, a range that took 18 months during its last extended phase of increases in 2005-2007 and 17 months in 1999-2000. .
Central bank interest rates impact credit costs for businesses and consumers. The increases are intended to curb inflation fueled by high energy prices linked to Russia’s war in Ukraine, disruptions to supply chains following the coronavirus pandemic, and reviving demand for goods and services after that restrictions have been eased due to COVID-19.
Quarter-point hikes have generally been the norm for central banks. But that was before inflation soared to 9.9% in the eurozone and 8.2% in the United States, its highest level in almost 40 years.
Inflation robs consumers of purchasing power, raising fears of a possible recession by the end of this year or early next year, both in the United States and in the euro zone.
The ECB expects inflation to fall to 2.3% by the end of 2024.
Higher rates can control inflation by making borrowing, spending and investing more expensive, which reduces the demand for goods. But the concerted effort to raise rates has also raised concerns about its impact on growth and stock and bond markets.