European Central Bank to raise interest rates for the first time since 2011

The European Central Bank (ECB) plans to raise interest rates next month for the first time since 2011 after warning inflation would increase by more than previously estimated, media reports said on Thursday.

Resisting calls for a 0.5 per cent increase next month, the ECB’s governing council said the base rate for the 19-member currency bloc would be raised by 0.25 per cent with a further, and possibly larger increase scheduled for September, The Guardian reported.

Monthly injections of electronic funds into the economy, known as quantitative easing, will also be stopped in July.

At a meeting in Amsterdam, the governing council said that inflation had become a “major challenge” and that inflationary forces had “broadened and intensified”.

According to its latest forecasts, inflation will average 6.8 per cent this year, well above the 5.1 per cent predicted in March, before falling to 3.5 per cent in 2023, and 2.1 per cent in 2024.

Officials said they were concerned that Russia’s invasion of Ukraine had hit “confidence, consumption and investment”, leaving the eurozone with a weaker growth outlook, The Guardian report said.

“It is disrupting trade, is leading to shortages of materials, and is contributing to high energy and commodity prices. These factors will continue to weigh on confidence and dampen growth, especially in the near term,” the ECB said.

However, it was unlikely the invasion would plunge the eurozone into recession, it said, adding: “The conditions are in place for the economy to continue to grow on account of the ongoing reopening of the economy, a strong labour market, (government) support and savings built up during the pandemic.”




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