ECB raises key interest rate as Fed hits pause

Business Friday 16/June/2023 15:43 PM
By: DW
ECB raises key interest rate as Fed hits pause

Brussels: The European Central Bank (ECB) announced a 0.25% raise on Thursday, bringing the eurozone's key interest rate to 4%.

"The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 4.00%, 4.25% and 3.50% respectively," the ECB said in a statement.

While the eurozone fell into recession, the eighth consecutive interest rate hike was aimed at persistent inflation.

"The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner," the bank said.

Year-on-year inflation in the bloc decelerated to 6.1% in May, but it remained more than three times the bank's 2% target.

ECB President Christine Lagarde suggested that more rate hites, including at the bank's next meeting on July 27, could be on the horizon.

"Are we done? Have we finished the journey? No, we're not at destination. Do we still have ground to cover? Yes, we have ground to cover," Lagarde told reporters.

The ECB head said the monetary institution "will continue to hike at our next meeting. So we are not thinking about pausing, as you can tell."

Lagarde pointed to factors such as wage increases and firms forcing up prices to increase their profits as key drivers of inflation.

Raising interest rates could bring down prices, but it could also provoke an economic downturn by bringing down demand. The ECB has said it will "follow a data-dependent approach" when it comes to rates and the economy.

US Fed freezes rates
On Wednesday, the US Federal Reserve paused its recent series of interest rate increases but warned that inflation remained "elevated" and implied that rates might rise again this year.

The Fed's benchmark lending rates will therefore remain between 5.0% and 5.25%, following 10 consecutive increases, in a bid to bring inflation accelerated by Russia's invasion of Ukraine under control.