The European Central Bank (ECB) has raised interest rates by 75 basis points, its largest-ever
increase, in an effort to lower inflation.
The ECB’s governing council raised its trendsetting interest rate by an unprecedented three-
quarters of a percentage point for the 19 countries that use the Euro currency.
It was the first time that Europe’s central bank has raised interest rates by 75 basis points since
the Euro’s introduction in 1999.
ECB President Christine Lagarde said the central bank plans to keep raising rates this year as
inflation is likely to stay above target for an extended period.
Some economists say the ECB’s interest rate hikes, including a 50 basis increase at the last
meeting in July, could deepen a European recession predicted for the end of this year.
Lagarde stopped short of predicting a recession, saying instead that economic activity in Europe
is expected to “stagnate” later this year and into 2023.
Inflation in Europe reached a record 9.1% in August and is expected to hit double digits by
year’s end, according to many economic forecasts.
The ECB has lagged other central banks around the world in raising rates. Central banks in
Canada, the U.S. and elsewhere have aggressively increased interest rates in recent months to
dampen inflation that has been fueled by the war in Ukraine and the impacts of the COVID-19
pandemic.
The ECB’s benchmark interest rate now stands at 1.25%. The U.S. Federal Reserve’s main rate
sits within a range of 2.25% to 2.50%. The Bank of England’s key interest rate is at 1.75%, and
the Bank of Canada’s trendsetting interest rate sits at 3.25%, the highest level among
industrialized nations.
The Euro currency recently dropped below $1 U.S. dollar, its lowest level in 20 years. The Euro
fell half a cent after the ECB’s latest interest rate decision to 99.5 U.S. cents.
