ECB increases key rates

On Thursday, the European Central Bank (ECB) announced the smallest increase to date in its three key interest rates since July. The 0.25% increase is the seventh-straight rise. Speaking to reporters in Frankfurt, Germany, ECB President Christine Lagarde said that inflation has decreased since its peak of over 10% in October, but at 7%, it is still considered too high.

The previous rate increases were all between one-half to three-quarters of a percentage point and have been transmitted throughout the financial industry in the 20-nation group that uses the euro as currency. It is unknown, however, how they are affecting the actual economy.

Following the Federal Reserve’s quarter-point increase in its benchmark interest rate, the ECB announced its rate hike for the eurozone. Lagarde stated that there is more to come, saying, “This is a journey. We have not arrived yet.”

An ECB press statement noted that the bank’s “future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium-term target and will be kept at those levels for as long as necessary.” The eurozone’s economic growth was just 0.1% during the first quarter of 2023, and the interest rate hikes are believed to be affecting it.

Inflation in the eurozone soared after Russia’s invasion of Ukraine last year, leading to a significant rise in fuel prices. While those prices have moderated, overall consumer costs remain high, and the interest rate hikes have resulted in reduced loan demand from households and companies in the eurozone banking data.