The European Central Bank on Thursday raised its benchmark interest rate by 25 basis points, thus continuing its fight against rising consumer prices, and now it is at a level not seen since November 2008.
“The inflation outlook continues to be too high for too long,” the ECB said in a statement. According to the latest announcement, the bank’s base interest rate will rise to 3.25% from May 10.
The decision was made after inflation data released earlier this week showed a 7% rise in April. At the same time, core inflation, which excludes volatile food and energy prices, eased slightly to 5.6%.
“Inflation in consumer goods prices has been declining in recent months, but the underlying pressures on prices remain strong,” the European Central Bank said.
The ECB began its current rate hike path in July 2022 when the regulator raised its base rate from -0.5% to zero. However, despite consistent rate hikes, inflation remains well above the ECB’s 2% target. Estimates released last week by the International Monetary Fund (IMF) show that inflation will not reach the ECB’s target until 2025.
Also, recent data show that the eurozone economy grew less-than-expected in the first quarter of the year, posting an anemic GDP figure of 0.1%. However, unemployment data showed a slight improvement in March compared to the previous month and amounted to 6.5%.
In addition, a recent study by the ECB showed that banks have significantly limited access to credit, which may indicate that the increase in interest rates has begun to have a negative impact on the real economy.
The US Federal Reserve on Wednesday announced a 25 basis point rate hike, bringing its target range to 5-5.25%, the highest level since August 2007. The Fed also stressed that it could be close to pausing rate hikes.
The decisions of the two central banks are being taken at a time when pressure on the banking sector, especially in the US, is not abating. Earlier this week, JPMorgan announced the acquisition of First Republic.
The CEO of Italy’s systemically important bank Unicredit told CNBC on Wednesday that he expects more bank bailouts in the US.