ALBAWABA — As widely expected, the European Central Bank’s Governing Council decided to raise three key ECB interest rates by 50 basis points, its fifth in a row, taking key rates to a range between 2.50 and 3.25 percent, vowing to raise them again next month to curb inflationary pressures.
The ECB, repeating the same hawkish language used after its last meeting in December, said it would "stay the course in raising interest rates significantly at a steady pace".
Accordingly, from February 8 the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3, 3.25 and 2.50 percent respectively, the ECB said in a press release.
The interest rate hike follows a 0.5-point hike in December but was lower than two jumbo 75-basis-point increases before that, the Governing Council believing that it will be sufficiently restrictive to ensure a timely return of inflation to its 2 percent medium-term target.
Earlier on Thursday, the Bank of England raised rates for a 10th time in a row, from 3.5 percent to a 14 year high of 4 percent, while the United States Federal Reserve also raised borrowing costs by 0.25 percent the day before.
On Tuesday, the International Monetary Fund forecast that the United Kingdom would be the only major economy to contract this year.
Recent less gloomy economic data has given cause for hope that the Eurozone would not fall into a recession after inflation skyrocketed following Russia's invasion of Ukraine.
European governments sought to curb soaring energy and food prices by rolling out relief measures to cushion consumers and businesses with unprecedented monetary tightening campaigns.
Recent economic data shows growing signs that the Eurozone may have tackled the worst of the economic shock, with inflation slowing from a peak of 10.6 percent in October and the zone achieving estimated GDP growth of 3.5 percent at the end of 2022.
"Headline inflation has gone down and more so than we had expected and that many had expected. But underlying inflation pressure is there, alive and kicking, which is why … I say we have more ground to cover and we are not done,” ECB President Christine Lagarde told reporters after the announcement, noting that the ECB's determination to return inflation to its 2-percent target "should not be doubted".
Overall, the economy has proved more resilient than expected and should recover over the coming quarters, Lagarde said, citing improved confidence, easing supply chain bottlenecks and a more stable gas supply in the Eurozone.
To offset U.S. dollar’s strength the ECB raised rates swiftly during the latter half of 2022 to try and lower import costs but with the U.S. Fed more moderate 0.25 interest rate hike the euro has been appreciating against the dollar leading the ECB to hope inflation could fall closer to the central bank’s target earlier than expected.
© 2000 - 2023 Al Bawaba (www.albawaba.com)