The European Central Bank (ECB) announced that it will hike interest rates for the first time in more than 11 years next month in order to combat the Eurozone’s growing inflation.
The ECB confirmed that it will raise borrowing costs by 25 basis points in July, its first rate hike in more than a decade. It also said that a larger boost could come in September “If the medium-term inflation outlook persists or deteriorates.”
“In May inflation again rose significantly, mainly because of surging energy and food prices, including due to the impact of the war. But inflation pressures have broadened and intensified, with prices for many goods and services increasing strongly,” said the ECB in a statement.
According to the ECB, the bank boosted its annual inflation prediction for the Eurozone “slightly” to 6.8% this year, saying it would remain just above its objective of 2% in 2024. It also lowered its growth projections.
However, According to Eurostat, the most recent estimate of Eurozone inflation was 8.1 percent, significantly above the ECB’s prediction.
The ECB’s main policy interest rate is presently at -0.50%, but the bank expects it to return to zero or higher by the end of September. The last time the same event happened was back in 2011 when the bank hiked interest rates in the eurozone for the first time.
The ECB attributed the skyrocketing inflation to Russia’s ongoing war with Ukraine, and said that “It is disrupting trade, is leading to shortages of materials, and is contributing to high energy and commodity prices.”
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