The European Central Bank announced the largest rate increase in its history Thursday and said there were more to come as it scrambles to tame record inflation.
Policymakers lifted the ECB’s key rates by 75 basis points, a leap matched only by a technical move made in 1999 shortly after the central bank’s founding.
Eurozone inflation hit a record 9.1% in August, as steep increases in the price of energy in the wake of the Russian invasion of Ukraine heaped pressure on households and businesses.
Consumer prices were likely to continue to rise quickly “for an extended period”, the ECB said in a statement, with its latest forecasts expecting inflation to average 8.1% in 2022.
The “major step” quickened the ECB’s move away from a “highly accommodative level of policy rates” to one that would bring inflation back to its 2% target, it said.
The Frankfurt-based institution was on a “journey” to raise interest rates and tame inflation, ECB President Christine Lagarde said at a press conference.
The ECB already exceeded expectations at its July meeting with a 50-basis-point increase in interest rates, its first hike in more than a decade.
Thursday’s drastic increase was not the end of the ECB’s work, however, with the central bank saying it “expects to raise interest rates further” at its next meetings.
The ECB had “given up on inflation targeting and forecasting and has joined the group of central banks focusing on bringing down actual inflation”, said Carsten Brzeski, head of macro at the ING bank
The ECB is playing catch-up with central banks in the United States and Britain, which started raising rates harder and faster in response to inflation.
The central bank also slashed its forecast for economic growth in 2023 to 0.9%, from its previous prediction of 2.1%.
Recent gloomy economic data meant the eurozone was “expected to stagnate later in the year and in the first quarter of 2023”, the ECB said.
