The European Central Bank has pressed ahead with another interest rate hike, aiming to crush inflation that is driving up the cost of groceries, utility bills and summer vacations.
ADVERTISEMENTThe ECB increased its benchmark rate by a quarter-percentage point, to 3.5 per cent on Thursday, a day after the US Federal Reserve took a break from its own string of increases.
In Europe, it was the eighth straight increase since July 2022, an unprecedentedly swift campaign to tighten the flow of credit to the economy as the bank seeks to return inflation to its target of two per cent from 6.1 per cent.
The decision was widely expected, and many analysts think one more quarter-point hike is in the cards for the bank’s next meeting on 27 July.
ECB projections acknowledge that controlling inflation will take months longer, even after the rate has fallen from a double-digit peak late last year.
“Are we done? Have we finished the journey? No, we’re not at the destination," she said at a news conference. "Do we still have ground to cover? Yes, we have ground to cover.”
Lagarde said the bank “will continue to hike at our next meeting. So we are not thinking about pausing, as you can tell.”
Central banks around the world are trying to wrestle down price spikes that have been squeezing households and businesses with higher bills for basics like food and rent but some are starting to diverge in their decisions to avoid plunging their economies into further trouble.
The Euro Area Business Cycle Dating Committee, which uses employment as well as economic growth data in determining when a recession has occurred, found no recession at its last assessment on 27 March and will revisit the question in November.
Carsten Brzeski, global head of macro for ING bank, said the ECB is “increasingly taking the risk of worsening the economic outlook.”
“Still, despite good arguments against further rate hikes, the ECB simply cannot afford to be wrong on inflation,” he said in a research note. “The bank wants and has to be sure that it has slayed the inflation dragon before considering a policy change.”
