ECB Raises Interest Rates, First In 11 Years
The European Central Bank (ECB) raised interest rates by a larger-than-expected amount for the first time in 11 years, joining actions already taken by other major central banks across the world to target stubbornly high inflation, Euronews reported on July 22, 2022.
Photo Insert: The ECB's move on Thursday brings it in line with the U.S. Federal Reserve and other major central banks in boosting interest rates.
The decision, revealed late Thursday, July 21, 2022, raises additional concerns about whether the drive to make credit more expensive could push major economies into recession at the expense of lowering prices for consumers spending more on food, fuel, and everything in between.
The ECB's surprise boost of half a percentage point for the 19 eurozone countries is expected to be followed by another half-point increase in September. Last month, the bank's President, Christine Lagarde, suggested a quarter-point increase.
The larger increase was justified by an "updated assessment of inflation risks," according to the ECB, and marks the end of the bank's zero interest rate policy.
“Economic activity is slowing. Russia’s unjustified aggression towards Ukraine is an ongoing drag on growth," Lagarde stated this during a press conference following the announcement.
“The impact of high inflation on purchasing power, continuous supply constraints and higher uncertainty are having a dampening effect on the economy. Taken together, these factors are significantly clouding the outlook for the second half of 2022 and beyond."
The ECB's move on Thursday brings it in line with the U.S. Federal Reserve and other major central banks in boosting interest rates.
The move reflects a larger and more tenacious rate of inflation than was initially anticipated, the doubtful health of an economy strongly vulnerable to the Ukraine war, and reliance on Russian oil and natural gas.
As skyrocketing electricity, fuel, and gas costs hit businesses and people's purchasing power, recession predictions have risen for later this year and the following year.