ECB raises interest rates again, cuts bank subsidies
The Hindu
The central bank for the 19 countries that use the euro raised its deposit rate by a further 75 basis points to 1.5% - the highest rate since 2009
The European Central Bank raised interest rates again on Thursday and announced it was changing the terms of its ultra-cheap loans to commercial banks in a bid to shrink its bloated balance sheet and fight off a historic surge in inflation.
Worried that rapid price growth is becoming entrenched, the ECB is raising borrowing costs at the fastest pace on record, with further hikes almost certain as unwinding a decade's worth of stimulus will take it well into next year and beyond.
The central bank for the 19 countries that use the euro raised its deposit rate by a further 75 basis points to 1.5% - the highest rate since 2009. Until as recently as July, ECB rates had been in negative territory for eight years.
"The Governing Council took today's decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target," the ECB said in a statement.
The euro dropped and European government bond yields slid after the announcement, which was in line with market expectations.
At a news conference, ECB President Christine Lagarde noted that while the Ukraine war and other global uncertainties meant the euro area economy faced a number of risks to the downside, inflation risks were skewed upwards.
"Incoming wage data and recent wage agreements indicate that the growth of wages may be picking up," she said of the possible emergence of future wage-price spirals, stressing the bank was monitoring expectations about long-term inflation.