ECB raises rates to highest level since 2001

The European Central Bank raised interest rates to their highest level in 22 years, warning that inflation is far from vanquished.

The ECB’s decision on Thursday to raise its benchmark deposit rate by a quarter point to 3.5 percent came as the central bank grapples with both an apparent wage-price spiral and a stagnant economy.

The bank, which will also publish updated forecasts for growth and inflation, reiterated its warning that it expects inflation to “remain very high for a very long time” as it will not return to its 2 percent target for the next two years. .

Its latest rate hike is in stark contrast to the US Federal Reserve’s decision to hold off on rate hikes a day earlier.

The ECB started raising rates several months after the Fed and at 6.1 percent, inflation is now higher in the eurozone than in the US.

Eurozone inflation has fallen from a record 10.6 percent in October. But this mainly reflects lower energy costs and the ECB worries that a prolonged period of high inflation risks a spiral of rising wages and costs that keep price pressures high.

According to ECB data published last week, wages per eurozone employee rose 5.2 percent in the first quarter from a year earlier, up from 4.8 percent in the fourth quarter.

The eurozone economy remains weak, shrinking slightly over the past two quarters, although it has proved more resilient than previously feared following Russia’s full-scale invasion of Ukraine.

The European Central Bank raised interest rates to their highest level in 22 years, warning that inflation is far from vanquished.

The ECB’s decision on Thursday to raise its benchmark deposit rate by a quarter point to 3.5 percent came as the central bank grapples with both an apparent wage-price spiral and a stagnant economy.

The bank, which will also publish updated forecasts for growth and inflation, reiterated its warning that it expects inflation to “remain very high for a very long time” as it will not return to its 2 percent target for the next two years. .

Its latest rate hike is in stark contrast to the US Federal Reserve’s decision to hold off on rate hikes a day earlier.

The ECB started raising rates several months after the Fed and at 6.1 percent, inflation is now higher in the eurozone than in the US.

Eurozone inflation has fallen from a record 10.6 percent in October. But this mainly reflects lower energy costs and the ECB worries that a prolonged period of high inflation risks a spiral of rising wages and costs that keep price pressures high.

According to ECB data published last week, wages per eurozone employee rose 5.2 percent in the first quarter from a year earlier, up from 4.8 percent in the fourth quarter.

The eurozone economy remains weak, shrinking slightly over the past two quarters, although it has proved more resilient than previously feared following Russia’s full-scale invasion of Ukraine.