ECB increases Eurozone interest rate in effort to stabilize economy

President Lagarde suggests more work to be done
ECB increases Eurozone interest rate in effort to stabilize economy
ECB raises key interest rate to 3.75%

The European Central Bank (ECB) announced that it would raise the eurozone’s key interest rate by 0.25%, bringing it to 3.75%. The move was made in an effort to curb inflation.

After raising the key interest rate by 0.5% at its previous three opportunities, the ECB’s latest announcement indicates a slowing of the pace of rate hikes.

The ECB’s decision to raise borrowing costs by 0.25% was in line with a similar move by the US Federal Reserve on Wednesday. The Fed also suggested that it might soon halt its cycle of interest rate increases.

Although the ECB is unlikely to stop increasing interest rates altogether, it did not provide a clear commitment to future hikes in its recent statement. Instead, the bank expressed its intention to adopt a “data-dependent approach.”

Read more: ECB announces further rate hikes of 50 basis points

The ECB’s decision was driven by concerns about high and persistent inflation, with preliminary EU figures predicting year-on-year inflation of 7% for April, well above the ECB’s target range.

Although the ECB did not indicate any imminent rate hikes, its President, Christine Lagarde, suggested that there was still work to be done and that the bank was on a journey towards addressing the issue.

The Central Bank began its current trajectory in July 2022, when it raised the main interest rate from -0.5% to 0%. Despite ongoing increases in interest rates since then, inflation remains significantly higher than the ECB’s target of 2%.

Estimates published by the International Monetary Fund (IMF) last week suggest that inflation will not reach the ECB’s target until 2025.

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