The European Central Bank pressed ahead with another interest rate hike Thursday, aiming to crush inflation that is driving up the cost of groceries, utility bills and summer vacations even after the U.S. Federal Reserve took a break from its own string of increases.
The boost of a quarter-percentage point, to 3.5 per cent, is the eighth straight increase since July 2022 for the 20 countries that use the euro currency. That is an unprecedentedly swift campaign to tighten the flow of credit to the economy as the bank seeks to return inflation to its target of 2 per cent from 6.1 per cent.The ECB says higher rates are being “transmitted forcefully” and “are gradually having an impact across the economy.
Central banks around the world are trying to wrestle down price spikes that have been squeezing households and businesses with higher bills for basics like food and rent but some are starting diverge in their decisions to avoid plunging their economies into further trouble. Carsten Brzeski, global head of macro for ING bank, said the ECB is “increasingly taking the risk of worsening the economic outlook.”
That is a concern in Europe, where the economy contracted slightly in the last months of 2022 and the first three months of this year. Two straight quarters of falling output is one definition of recession.
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