Jul 27, 2023 - Economy

European Central Bank raises rates again as inflation battle drags on

Photo o f ECB president Christine Lagarde in front of European Union flag

European Central Bank president Christine Lagarde speaks at a news conference last month. Photo: Alex Kraus/Bloomberg via Getty Images

The European Central Bank (ECB) raised interest rates by a quarter percentage point on Thursday, continuing an historic stretch of interest rate hikes meant to conquer high inflation.

Why it matters: The ECB is the latest central bank, following the Federal Reserve, to raise borrowing costs to multi-decade highs — an attempt to cool off the economy in the hopes that inflation will follow.

What they're saying: "Inflation continues to decline but is still expected to remain too high for too long," the central bank said in a policy statement.

  • The central bank did not give a clear signal of whether it plans further rate increases.
  • Yes, but: It said it would continue to evaluate economic data to determine the "appropriate level" of interest rates — and how long they need to stay that high.

Catch up quick: The Eurozone, which faced huge disruptions to its energy supply when Russia invaded Ukraine, saw inflation drop sharply in June.

  • The headline inflation rate rose 5.5% in the 12 months through June, slowing from 6.1% the prior month as energy costs plummeted.
  • But the core measure, which excludes energy and food prices, rose from May's mark of 5.3% to 5.5%.

What to watch: Like the Fed, ECB officials are monitoring how its previous interest rate increases are working through the economy.

  • "The past rate increases continue to be transmitted forcefully: financing conditions have tightened again and are increasingly dampening demand, which is an important factor in bringing inflation back to target," the central bank said in a statement.
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