On Thursday, the European Central Bank raised interest rates for the first time in 11 years, joining the US Federal Reserve and other central banks in tightening monetary policy to combat rampant inflation.
The European Central Bank raised its benchmark deposit rate by half a percentage point, which was higher than expected. Last month, ECB President Christine Lagarde predicted a quarter-point increase.
The ECB said in a statement that “the Governing Council judged that it is appropriate to take a larger first step on its policy rate normalisation path than signalled at its previous meeting.”
The decision was based on a “updated assessment of inflation risks,” according to the bank. With the latest hike, Europe will end a multi-year period of negative interest rates and loose monetary policy.
According to Reuters, the ECB also raised its main refinancing rate to 0.50 percent. More rate increases are expected at the bank’s next meeting in September.
“Further interest rate normalisation will be appropriate,” the ECB added. “By frontloading the exit from negative interest rates today, the Governing Council can move to a meeting-by-meeting approach to interest rate decisions.”
The ECB, like the Fed and other central banks, is attempting to lower prices by raising interest rates without causing an economic slowdown or recession. In Europe, inflation reached 8.6 percent last month, and it is expected to rise further in the coming months as European countries deal with a potential energy crisis.
Unlike the United States, European countries continue to rely heavily on Russian energy shipments, even as they impose sanctions on Russia in response to its brutal invasion of Ukraine. While Russia reopened a key natural gas pipeline with limited capacity on Thursday after a 10-day shutdown, supply concerns and the possibility of a shutdown are expected to persist.
The ECB is the eurozone’s equivalent of the Federal Reserve Bank of the United States. The central bank sets economic policy for the eurozone’s 19 member countries.