ECB raises interest rate by 0.5%

16 Dec 2022 , 07:52 AM

On Thursday, the European Central Bank slightly reduced its record rate of interest rate increase, joining the U.S. Federal Reserve and other central banks around the world in stepping up their fight against inflation while also making progress in reducing the high prices that are burdening consumers.

In a flurry of central bank activity this week, the Fed, the Bank of England, and the Swiss National Bank all scaled back their rate rises from three-quarters to half on Thursday.

As inflation has slightly decreased from excruciatingly high levels, the banks’ global war against rising consumer prices has slowed considerably.

However, policymakers stress that additional rate increases are on the way to control inflation from decade-high levels and to combat rising prices for housing, food, and energy that are ruining people’s wallets.

The ECB said of its 2% aim that inflation remained too high and is expected to remain over the target for an extended period of time: “The Governing Council decided to raise interest rates today and intends to hike them much further.”

The 19 nations that utilise the euro had their inflation rate dip to 10% in November from 10.6% in October, the first decline since June 2021. Though high energy costs pose a risk of a European recession, ECB policymakers have stated that it is still too early to declare that the pace has peaked.

Following record rises of three-quarters of a percent in July and October, the ECB raised interest rates. Even with the current inflation eruption, which was brought on by the rebound from the epidemic and the war in Ukraine driving up food and energy prices, half-point increases are still larger than the typical swings.

The benchmark rate for loans to banks at the ECB is 2%, and its rate on overnight deposits from commercial banks is 1.5%.

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