ECB set for historic interest rate hike for first time in 11 years
2 Min Read
Bank surprises markets with 0.5 percentage point hike as inflation reaches 8.6% in eurozone.
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The building of the European Central Bank (ECB) behind the Euro sign logo by the artist Otmar Hoerl in Frankfurt, Germany
The European Central Bank (ECB) has for the first time in over a decade raised interest rates to combat eurozone inflation that hiked 8.6% last month.
While economists were expecting a 0.25 percentage point hike, the ECB surprisingly pushed its base rate up by 0.5 percentage points, saying the increase was a must to limit the pressure on prices over the coming two years.
Read: In what direction is the euro heading?
“The governing council decided to raise the three key ECB interest rates by 50 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 0.50%, 0.75%, and 0.00% respectively, with effect from 27 July 2022,” the ECB said.
Before the decision was reached, the euro kept falling against the US dollar, but it is expected to get a boost in the coming week when the Fed could hike its main interest rate by 0.75 points.
The Bank of England is expected to proceed with another rise in August, too.
German, Dutch, and Austrian officials have pushed ECB officials and put them under pressure to increase borrowing costs in spite of fears that debt financing fees would escalate for southern European members of the euro currency bloc.
Italy’s government collapse earlier in the day increased the cost of Rome’s borrowing and pressured the ECB to step up its “anti-fragmentation” program, made to protect nations that come under debt financing stress.
Recession concerns have helped push the euro to a 20-year low against the dollar, which adds to the ECB’s inflation-fighting task by worsening already high energy prices. Oil is among many commodities priced in dollars.
