The European Central Bank raised interest rates for the first time in 11 years, joining the global march to combat high inflation with an unexpectedly big hike of half a percentage point.
The decision at a meeting of the bank’s 25-member Board of Governors on Thursday comes as the bank faces a difficult path forward: whether or not the rush to raise the cost of credit will push Europe into recession at the expense of fighting record inflation.
The bank says the larger-than-expected increase was justified by an “up-to-date assessment of inflation risks”.
The bank stated that it would be appropriate to continue raising interest rates in the upcoming meetings.
In a related context; The European Central Bank unveiled a new crisis tool aimed at controlling borrowing costs for indebted eurozone governments such as Italy, as the bank raised interest rates for the first time in a decade.
The so-called Policy Mainstreaming Protection Tool, a stock-buying program, “can be activated in the face of unexplained and turbulent market dynamics that pose a serious threat to monetary policy mainstreaming across the eurozone.”
The repercussions of the Russian war in Ukraine and rising inflation are casting a bleak shadow over the economic outlook in the eurozone, European Central Bank President Christine Lagarde said Thursday.
“The unjustified Russian aggression against Ukraine is a continuing impediment to growth. The repercussions of high inflation … and growing confusion are weakening the economy,” Lagarde told reporters.
She added that these factors “cast a shadow over the prospects for the second half of 2022.”
She added that inflation in the euro area “remains undesirably high and is expected to remain above our target for a considerable time”.
And the financial analyst at IG, Montaser Safi El-Din, said in an interview with Al-Arabiya channel, the interest rate that the European Central Bank will adopt will not affect the markets or investors, and the problem is not with the European Central Bank or because of it.
He added that there may be more questions for everyone after Lagar finished the press conference.