The European Central Bank raised its key interest rate by half a percentage point, a bigger-than-expected move as it joins the global fight against inflation.
The European Central Bank raised its key interest rates by half a percentage point on Thursday, the first increase in more than a decade and a bigger jump than expected, as it ramped up its fight against record high inflation.
Consumer prices in the countries that use the euro are soaring at their fastest rate in generations, reaching 8.6 percent in June from a year earlier, driven by rising energy and food prices. Nearly every corner of the globe has been hit by inflation in recent months, but the situation facing Christine Lagarde, the bank’s president, is particularly tricky: balancing the weaknesses and debt burdens of 19 different countries’ economies.
Raising interest rates was the crucial next step in ending the European Central Bank’s era of ultra-loose monetary policy support. The bank has already ended its multitrillion-euro programs to buy bonds. And after eight years, the end of its policy of negative interest rates — aimed at prompting banks to lend generously — abruptly ended. The deposit rate, which is what banks receive for depositing money with the central bank overnight, was raised from minus 0.5 percent to zero.
But at the same time, policymakers are walking a fine line between easing price pressures and drawing the European economy into a recession.
The last time the bank raised rates was in July 2011 but policymakers reversed the move just four months later, as a crisis in the region’s bond markets intensified.
(SOURCE: NY TIMES)
