European Central Bank raises rates by 50 basis points, first hike in 11 years

The European Central Bank raised its benchmark deposit rate by 50 basis points to zero percent.

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The European Central Bank raised its benchmark deposit rate by 50 basis points to zero percent, breaking its own guidance for a 25 basis point move as it joined global peers in jacking up borrowing costs. It was the euro zone central bank’s first rate hike for 11 years.

The European Central Bank raised interest rates by more than expected on Thursday, confirming that concerns about runaway inflation now trump growth considerations, even as the euro zone economy reels from the impact of Russia’s war in Ukraine.

The rate has been negative since 2014 in a bid to boost the region’s economy after years of weak growth but consumer prices rose at a record 8.6% in the 12 months to June as food, fuel and energy costs soared. That is well above the bank’s 2% target.

Explaining its decision to raise rates, ECB president Christine Lagarde said: “Economic activity is slowing. Russia’s unjustified aggression towards Ukraine is an ongoing drag on growth. We expect inflation to remain undesirably high for some time owing to continued pressure from energy and food prices and pipeline pressures in the pricing chain”

The bank says further rate hikes “will be appropriate” and that it will take a “meeting-by-meeting” approach to raising rates which might take place in September.