Business & Economy

ECB hikes interest rates to head off inflation

Frankfurt, Germany, Dec 15 (EFE).- The European Central Bank raised interest rates on Thursday by half a percentage point, pushing its key rate to its highest level since December 2008 in a bid to contain inflation.

“The Governing Council today decided to raise the three key ECB interest rates by 50 basis points and, based on the substantial upward revision to the inflation outlook, we expect to raise them further,” the central bank’s president, Christine Lagarde, told a press conference.

“In particular, we judge that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to our two per cent medium-term target,” she said, adding that maintaining rates at “restrictive” levels over time would reduce inflation by “dampening demand.”

The ECB said in a statement that it was also increasing the interest rate on the main refinancing operations by to 2.5%, the interest rates on the marginal lending facility to 2.75% and the deposit facility to 2%.

The bank added that from March 2023 it would begin to reduce its asset purchase program (APP) to 15 billion euros per month on average until the end of the second quarter of 2023.

The central bank said that its projections suggested that if an economic recession were to take place it would be “relatively short-lived and shallow” and fueled by “the energy crisis, high uncertainty, weakening global economic activity and tighter financing conditions.”

Growth in the euro area is expected to be “subdued” next year and as such has been “revised down significantly compared with the previous projections,” the report added.

The ECB also revised its average inflation forecast in the Eurozone for 2022 up to 8.4% (three-tenths more than previous projections); 6.3% in 2023 (eight-tenths more than previously predicted); 3.4% by 2024 (up by 1.1 percentage points); and 2.3% by 2025.

Inflation excluding energy and food is forecast to be 3.9% on average in 2022 and to rise to 4.2% in 2023, before dropping to 2.8% in 2024 and 2.4% in 2025, the report added.

The ECB said that, according to Eurostat’s flash estimate, inflation stood at 10% in November, six-tenths less than in October, due to lower energy prices.

In the United Kingdom, the Bank of England imposed its ninth consecutive interest rate hike this year taking the bank rate to 3.5%, a level that has not been seen since the 2008 credit crunch.

The rise was a smaller rate hike of 0.5 percentage points compared to the previous 0.75 percentage points which were rolled out last month when inflation hit a record high of 11.1%, compared to November’s rate of 10.7%.


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