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ECB hikes interest rates again in anti-inflation bid

, February 3, 2023, 0 Comments

The European Central Bank (ECB) has raised deposit interest rates by half a percentage point to 2.5%. The move comes despite slowing inflation in the eurozone.

The European Central Bank on Thursday announced a large half-point interest rate hike to combat inflation and said it intended to do the same in March.

The rise takes the rate it pays on bank deposits to 2.5%, in line with what it said in December and with market expectations. It brings the bank’s three main rates to a range of between 2.5 and 3.25%.

The move, the fifth hike in a row, comes as inflation reached 8.5% in the 20 countries using the euro in January — still a high rate, but down from the double figures seen late last year.

The ECB announcement came shortly after the Bank of England raised interest rates for the 10th time in a row to 4.0% — their highest level since 2008 — from 3.5%.

Both European banks made their announcements a day after the US Federal Reserve said it would implement just a quarter-point rise, while saying that further increases would be necessary.

Raising interest rates can dampen inflation by making loans more expensive and thus slowing demand. However, higher interest rates can also negatively impact economic growth.

What did the ECB say?

ECB President Christine Lagarde said at a news conference that the bank would “stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to its 2% medium-term target.”

“We know that we have ground to cover; we know that we are not done,” she said.

The bank said that “keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations.”