The European Central Bank on Thursday raised its key interest rates for the first time in over a decade. The move is aimed to combat inflation as consumer prices in the eurozone rose at an 8.6% annual pace in June.
The ECB raised its negative benchmark deposit rate by 50 basis points from minus 0.5% to 0%, lifting the bank’s deposit facility out of negative territory for the first time in eight years.
The announcement came as a surprise as the bank had initially hinted that it would hike the rate by 25 basis points only.
The ECB justified the bigger hike by an “updated assessment of inflation risks” and pledged further action possibly as soon as its next meeting in September.
“At our upcoming meetings, further normalization of interest rates will be appropriate,” said ECB chief Christine Lagarde.
Moving away from negative interest rates “allows us to make a transition to a meeting-by-meeting approach to our interest rate decisions,” Lagarde added.
The ECB targets an inflation rate of 2% as its maximum, but had been keeping its interest rates to historic lows for years. The previous stance was calculated to encourage growth in the eurozone economy battered by several national debt crises, the COVID pandemic, and now, Russia’s invasion of Ukraine.
The US Federal Reserve and the Bank of England have already taken action to curb inflation, raising interest rates earlier than the ECB.
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