50 basis points increase approved by ECB, BoE
Following the Federal Reserve’s decision to raise interest rates by 25 basis points, the European and British Central Banks raised rates by 50 basis points.
The European Central Bank (ECB) pledged in a statement to “continue the path of raising interest rates significantly and at a steady pace.”
In unusually firm language, it said he planned to raise interest rates by another 50 basis points in March.
Interest rates at the ECB are now between 2.5 percent and 3.25 percent, their highest levels since November 2008.
Keeping interest rates at restrictive levels would control rising prices by curbing demand, it said, adding that decisions at future meetings would be based on data.
The ECB’s move follows four hikes in 2022 that pushed eurozone interest rates out of negative territory for the first time since 2014.
Figures released on Wednesday showed inflation in the eurozone fell for a third straight month in January. But headline inflation remained high at 8.5 percent. Core inflation, which excludes energy and food, held steady at 5.2 percent.
Read: ECB raises interest rates, expects large future increases
ECB President Christine Lagarde told a press conference following the announcement: “Price pressures remain strong, partly due to the spread of high energy costs across the economy.”
Discussing the economic picture of the euro area, she noted that growth slowed to 0.1 percent in the fourth quarter and is expected to remain subdued in the near term, as geopolitical uncertainty and tightening financing conditions weigh on growth.
However, “risks to the outlook for economic growth are becoming more balanced,” she said, noting that gas supplies are safer, supply pressures are receding, consumer confidence is improving, and rising wages and lower energy prices will boost consumption.
“Overall, the economy has proven to be more resilient than expected and should improve over the coming quarters,” she said.
Lagarde also said governments should pull back energy price subsidies to avoid increasing inflationary pressures over the medium term.
In December, the ECB announced that from March it would begin reducing its balance sheet of €5 trillion ($5.49 trillion) by €15 billion per month on average until the end of June 2023.
Reducing the balance sheet and selling the central bank’s portfolio of bonds are seen as additional ways to tighten policy apart from raising interest rates.
The bank said on Thursday it would continue to partially reinvest its outstanding debt.
Bank of England
The Bank of England (BoE) raised interest rates for the tenth time in a row and expected a bigger recession than expected in Britain this year.
At a regular meeting, the Bank of England voted in favor of a 50-basis point rate hike to 4 percent, the highest since late 2008.
The Monetary Policy Board voted seven to two against, while a minority called for interest rates to remain at their levels, according to the minutes of the meeting.
The BoE predicted that the British economy’s decline would be lighter than its previous forecast, noting that inflation “may be” peaking in many developed economies.
Inflation in the UK, now close to a 40-year high, is expected to continue to decline “gradually” in the first half of 2023, as energy prices fall, according to the minutes.
Thursday’s announcement could deepen Britain’s cost-of-living crisis as commercial lenders raise interest rates linked to credit cards, mortgages, and other loans. That will put further pressure on the pockets of Britons, who are careful about spending given rising consumer prices, household bills, and transport costs.
Strikes have paralyzed Britain this week with demonstrations by public and private sector workers against wages that have failed to keep pace with inflation.
Inflation in Britain slowed to 10.5 percent in December.
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