Just before the ECB’s interest rate announcement, the Bank of England surprised the markets by putting up interest rates in Britain. They were raised by a quarter percentage point. That was the first change by the bank’s Monetary Policy Committee in a year and the first increase in two years.
Next week the US Federal Reserve will meet to consider its own interest-rate move. It has raised them 17 times in a row. Economists are not sure if a recent slow down in US economic growth will lead the Fed to pause in its campaign of rate hikes.
Worries about inflation are leading central banks around the world to raise borrowing costs. The US is at 5.25%. The euro zone rate has reached 3% and the UK 4.75%. Even Japan, which has had near zero rates for six years, raised them slightly last month to 0.40%.
The danger for central bankers is that if they put up rates too fast it could choke off economic growth, but the ECB particularly is encouraged by recent figures showing Germany, Europe’s biggest economy, gaining strength.
The big unknown is energy prices which have fueled inflation of late and which are subject to geopolitical pressures in volatile areas like the Middle East that bankers have no control over.