Despite a gloomier economic outlook, the European Central Bank (ECB) announced an eighth consecutive interest rate hike on Thursday, citing persistently high eurozone inflation.
The deposit rate, closely monitored by markets, was raised by 25 basis points to 3.50 percent, reaching its highest level since 2001.
In a statement, the ECB acknowledged that while inflation had been decreasing, it was still expected to remain elevated for an extended period.
The bank expressed its determination to achieve its target of two percent inflation and stated its commitment to maintaining rates at sufficiently restrictive levels for as long as necessary.
This quarter-point increase had been widely anticipated by analysts, who were eager for insights from ECB President Christine Lagarde during her press conference in Frankfurt at 12:45 GMT. They hoped for indications that the central bank’s extensive monetary tightening campaign was approaching its peak.
In contrast, the Federal Reserve in the United States decided not to raise interest rates further after ten consecutive increases. However, the Fed signaled the likelihood of additional hikes before the year’s end due to inflation persisting above the bank’s target rate.
The ECB has been swiftly raising borrowing costs in response to elevated inflation in the eurozone, triggered by the surge in food and energy prices following Russia’s conflict in Ukraine. Since last July, rates have been increased by a total of 3.75 percentage points, marking the fastest rate of hikes in the bank’s history.
Eurozone inflation moderated to 6.1 percent year-on-year in May, down from a peak of 10.6 percent in October, primarily due to declining energy costs.
The ECB noted that its efforts to combat inflation were gradually influencing the overall economy, resulting in a significant slowdown in loan demand throughout the eurozone as households and businesses grapple with higher borrowing costs.