The European Central Bank on Thursday raised rates of interest for a tenth consecutive time in an effort to pressure inflation down.
The financial institution lifted its three key rates of interest by 1 / 4 of a proportion level, elevating the deposit charge to 4 p.c, the best within the central financial institution’s two-decade historical past.
“Inflation continues to decline but is still expected to remain too high for too long,” the central financial institution stated in an announcement. It elevated charges to “to reinforce progress” on decreasing inflation.
Thursday’s resolution was seen as virtually a coin toss, because the policymakers weighed how a lot progress had been made on decreasing inflation towards their willpower to not declare victory too early. This week, analysts had been evenly break up on whether or not policymakers would increase rates of interest once more or pause. As the assembly approached, bets by traders in monetary markets tilted towards a barely greater probability that the financial institution would increase charges.
Inflation within the eurozone has slowed meaningfully from its double-digit peak final yr. But it’s nonetheless too excessive for the area’s policymakers, who’re tasked with returning the inflation charge to 2 p.c. Consumer costs rose 5.3 p.c in August in contrast with a yr earlier, the identical tempo because the earlier month and defying economists’ expectations for a slowdown due to a leap in gas costs. At the identical time, home inflationary pressures, which policymakers are watching carefully, had been nonetheless robust. Core inflation, which strips out meals and vitality costs, was 5.3 p.c.
The central financial institution predicts inflation will nonetheless simply above the goal in 2025 and so policymakers have tried to put the bottom for an extended interval of excessive rates of interest that might restrain the economic system additional. Already, demand for loans has weakened and banks are tightening their lending requirements.