European Central Bank hikes interest rates again as high inflation persists

The European Central Bank has increased interest rates yet again, this time by 0.25 per cent, as part of its ongoing fight to bring inflation under control.

Inflation has slowed across the board, but remains higher than the ECB desires, and for particular sectors in certain countries it picked up again after an initial dip.

The ECB’s goal is to keep inflation around two per cent.

“Underlying price pressures remain high, even though most indicators have started to ease,” said the ECB in an official press release.

ECB staff have slightly revised down the projected path for inflation excluding energy and food, to an average of 5.1 per cent in 2023, 2.9 per cent in 2024 and 2.2 per cent in 2025.

“The rate increase today reflects the Governing Council’s assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.”

This increase, announced on 14th September (today) and taking effect on 20th September, is the 10th consecutive one, with ECB raising rates at every meeting since July 2022.

Based on its current assessment, the ECB said it believes that the key interest rates have reached levels that, maintained for a sufficiently long duration, “will make a substantial contribution to the timely return of inflation to the target”.

“The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary,” it continued.

“The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.”