Europe's central bank surprises markets with bigger-than-expected rate hike
The European Central Bank said on Thursday it would raise interest rates for the first time in 11 years — hiking borrowing costs by a larger-than-expected 0.5%.
Why it matters: It's one of the last major central banks to pull the trigger on raising rates. It's a new era for the eurozone after a long spell of ultra-loose monetary policy (with negative interest rates) as policymakers face record-high inflation in the bloc — and the threat of a recession.
The big picture: The euro area has been slammed by the economic fallout from Russia's invasion of Ukraine. That's complicated the ECB's battle with sharply rising costs as economic growth slows.
- The central bank is also dealing with widening gaps between what Italy and other countries must pay to borrow money.
- That may be further complicated as Italy is thrown into political turmoil, with Prime Minister Mario Draghi (a former leader of the ECB) poised to leave his post.
Details: To address the diverging borrowing costs, the ECB also unveiled a plan to buy up debt from countries with more vulnerable economies.
- In a statement, policymakers also hinted further interest rate hikes are on the horizon.
- "The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions," the statement reads.