ECB Ends Stimulus Scheme For Eurozone, Interest Rate Hike Set For July

The European Central Bank (ECB) ended its long-running stimulus program on Thursday, June 9, 2022, and signaled that it will deliver its first interest rate hike since 2011 next month, followed by a potentially larger move in September if inflation does not moderate, Bart H. Meijer reported for Reuters.

Photo Insert: The European Central Bank

With inflation at a record high of 8.1 percent and still rising, the ECB is concerned that price growth is broadening and could morph into a difficult-to-break wage-price spiral, ushering in a new era of persistently higher prices.

The eurozone's central bank announced that it will stop buying bonds on July 1 and raise interest rates by 25 basis points later that month. It will hike again in September, possibly by 50 basis points, which would be the largest one-time increase since June 2000.

"We will make sure that inflation returns to our 2% target over the medium term," ECB President Christine Lagarde said during a news conference. "It is not just a step, it is a journey," she said of the moves signaled on Thursday.

Energy and food prices initially drove the rapid rise in inflation as economies emerged from COVID-19 lockdowns, but Russia's invasion of Ukraine has accelerated those trends.

The size of rate hikes to curb inflationary pressures has been hotly debated by ECB policymakers, with Chief Economist Philip Lane preferring 25-basis-point moves in July and September but others arguing for 50 basis-points to be considered.

To bolster their case, the ECB raised its inflation forecasts yet again, now expecting 6.8 percent inflation this year, up from 5.1 percent previously. Inflation is expected to be 3.5 percent in 2023 and 2.1 percent in 2024, indicating four years of inflation overshoots, according to Reuters' Balazs Koranyi, Francesco Canepa, and Marc Jones.

WEEKLY FEATURE : MVP Group Keeps Lights On During Pandemic