The European Central Bank, ECB, advanced another rise in interest rates. He noted his efforts to contain inflation even when the economy slows. In parallel, the United States Federal Reserve reduced its rate of increases.
The Frankfurt-based bank raised its benchmark rates by half a percentage point and said it intends to make a similar move in March. Policy makers are acting firmly to stem the price spike, which has slowed from all-time highs but continues to hurt households in the 20 countries that use the euro.
The bank rose half a point in December, and now says it will “stay on course to raise interest rates significantly at a steady pace,” according to ECB President Christine Lagarde.
“Now they will say: ‘Well, yes, but what about after March? Does that mean the peak or the high point has been reached?'” he added later. “No, no, no, no. We know we have a ways to go. We know we’re not done,” she added.
The Bank of England also booked a half-point hike, but the Federal Reserve backtracked a day earlier, holding back to a quarter-point rise as central banks around the world reassess their approach to dealing with shocks. price increases that begin to subside.
The ECB sent a “relatively strong message” with the “rare” pre-announcement of the March hike, said Nick Bennenbroek, international economist at Wells Fargo Economics. The official expects the March hike to be followed by a quarter point hike in May, which would mark the high point for ECB rates.
Central banks can slow down economic growth if they raise benchmark interest rates too much. With the ECB moving quickly, Lagarde acknowledged that “economic activity has slowed markedly” since the middle of last year and is expected to remain weak as demand slows around the world and the war in Ukraine adds to uncertainty. .
The eurozone economy grew just 0.1% in the last three months of 2022, but Lagarde remains optimistic, pointing to improving supply chain problems and greater security of natural gas supplies in Europe after the Russia will cut off most of the flows to the continent.
“The economy has proven to be more resilient than expected and should recover in the coming quarters,” he said.
The larger moves by the ECB compared to the Federal Reserve partly reflect a later start to rate hikes, as they started in July, four months after the US central bank made its first hike, and from lower levels .
Financial markets indicated that traders would bet that the ECB would back down at the end of this year and next due to falling growth. The bank seemed to warn of this by stating that it would maintain “restrictive rates over time” to contain inflation.
The increase in interest rates makes it more expensive for consumers to borrow for the purchase of homes and cars, as well as financing for the expansion of companies.