ECB raises interest rates to 23-year high

The European Central Bank (ECB) on July 27 raised its key lending rate in the euro zone to curb inflation, but left open options for future decisions amid a weakening regional economy .

Policymakers raised interest rates for the 20 countries that use the euro by 0.25 percentage points, pushing the deposit rate to 3.75%, the highest since October 2000.

Speaking at a press conference on July 27, ECB President Christine Lagarde said that although inflation is slowing, it remains too high for too long.

She acknowledged that previous rate hikes were having an impact on the euro zone, reflected in tighter lending conditions and lower demand for loans. The short-term outlook for the economy was also deteriorating, partly due to these credit conditions, Ms. Lagarde said.

However, the ECB President refused to give any indication of the bank's decision at its next policy meeting in mid-September, breaking with recent trends.

World - ECB raises interest rates to 23-year high — ECB President Christine Lagarde speaks to the media after the ECB Governing Council monetary policy meeting in Frankfurt, Germany, July 27. Photo: Yahoo!News/Reuters

“We are deliberately data-dependent, we have an open mind about the decisions in September and in the next meetings. We can either raise or maintain the current interest rates,” Ms. Lagarde shared.

“What I can guarantee is that we will not cut interest rates, absolutely not,” Ms. Lagarde affirmed.

Consumer prices in the 20-country euro zone have fallen since peaking at 10.6% in October 2022, but were still up 5.5% year-on-year in June. The ECB's target is to bring inflation down to 2% over the medium term.

After years of keeping interest rates near zero and negative in the eurozone, the bank started raising rates in July 2022 after the Russia-Ukraine conflict caused energy and food prices to rise.

The ECB's move came a day after the US Federal Reserve (Fed) raised interest rates by 0.25%, also the highest level in 22 years.

Even as consumer price growth has slowed in recent months, US policymakers have warned that they still face a tough challenge in getting inflation back to their 2% target “in time”.

On July 26, Fed Chairman Jerome Powell said that despite progress in reducing inflation, interest rates have not been at a restrictive level for long enough in the US, and officials are ready to raise rates further if needed. Mr. Powell also affirmed that the Fed will not cut interest rates this year .

Nguyen Tuyet (According to DW, NY Times)

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