ECB further raises interest rates to cool inflation

Frankfurt, Oct 28 (SocialNews.XYZ) The European Central Bank (ECB) has raised key interest rates by 75 basis points, the third consecutive increase this year.

In the magnitude and pace of monetary tightening, the bank has manifested its determination to tame the persistently high inflation, which is weighing down the economic growth of the euro area, reports Xinhua news agency.

After Thursday's latest hike, the interest rates of the main refinancing operations, the marginal lending facility and the deposit facility will be lifted to 2 per cent, 2.25 per cent and 1.5 per cent, respectively.

The central bank started to raise key interest rates in July with a 50-basis-point increase, followed by two 75-basis-point hikes in a row.

After three rate-setting meetings, it has so far lifted interest rates by 200 basis points.

The three-quarter-point hikes, which ECB President Christine Lagarde deemed "significant", have sent a clear message that the central bank is resolved to withdraw the accommodative monetary policy in the euro area, where the policy has been implemented for more than a decade.

"With this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation," said an ECB statement.

Since the eurozone is still plagued by rampant inflation, it's reckoned that more hikes are in the pipeline.

In September, the annual inflation in the bloc stood at 9.9 per cent, a figure the ECB considers "far too high".

Soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to extensive price pressures and an increase in inflation, Lagarde told a press conference on Thursday.

"The Governing Council's monetary policy is aimed at reducing support for demand and guarding against the risk of a persistent upward shift in inflation expectations," she said.

Reaffirming the ECB's commitment to taming the inflation and bringing it down back to meet its 2 per cent medium-term target, Lagarde said there will be more rate hikes in the future, and "there is still ground to cover" to normalise the monetary policy.

Lagarde took note of the possibility of economic recession in the euro area but insisted that the ECB stick to its mandate of maintaining price stability.

Responding to a question about the possible "neutral rate", which some observers speculate will be 2 per cent for the deposit facility, Lagarde said the normalisation process will continue and the ECB will identify a rate to help deliver the 2 per cent inflation target in the future.

She also disclosed that the Governing Council did not discuss the reduction of balance sheet on Thursday, while the reduction of the asset purchasing program portfolio will be discussed in December.

Source: IANS