European Central Bank raises interest rates by a record 75 basis points
- The European Central Bank has just pulled the trigger on its largest interest rate hike.
- The central bank raised rates by 75 basis points and announced further hikes.
- Economies around the world are raising rates as they struggle to contain soaring inflation.
The European Central Bank raised interest rates by 75 basis points on Thursday as the euro zone struggles to contain spiraling inflation.
The central bank announced that its base rate would drop from 0% to 0.75% in a press release, saying the move was a step “to rein in demand and hedge against the risk of a persistent rise in expectations. of inflation”.
The hike – the largest in ECB history – is the second in as many meetings for the central bank. In July, it raised rates for the first time since 2019, taking its base rate from minus 0.5% to 0%, a first hike under its chairman, Christine Lagarde.
The euro fell in the European afternoon to $0.9957, dropping back below $1 after initially swinging slightly higher at $1.0020 immediately after the ECB’s decision. On Monday, the single currency fell below $0.99 for the first time in two decades after Russia halted natural gas flows to Europe.
The central bank has signaled that it plans to make further hikes in the coming months, as it believes inflation remains far too high and likely to stay above its target for a long time.
The second rate hike in three months comes amid economic peril for Europe as it struggles to tackle soaring costs of living, triggered in large part by the invasion of Europe. Ukraine by Russia, which has driven up food and energy prices in recent months.
Inflation in the euro zone reached 9.1% in August, against 8.9% in July, its highest level since the creation of the single currency in 1999.
Central banks around the world are raising rates to fight inflation, with the US Federal Reserve having already raised three times in 2022 and the Bank of England raising rates six times since December to 1.75%.
An ECB rate hike had been widely expected by analysts, only the magnitude of the hike being in question. Opinions diverged on whether the central bank would hike 50 basis points, as it did in July, or 75 basis points.