Jul 21, 2022 - World

Europe's central bank surprises markets with bigger-than-expected rate hike

Courtenay Brown

Photo: Daniel Roland/AFP via Getty Images

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.

Add Axios on Google

Europe's central bank surprises markets with bigger-than-expected rate hike

What to read next