The European Central Bank (ECB) announced an interest rate increase of 75 basis points – matching the US Federal Reserves’ last bump – as it targets a 2% rate of inflation. The rate increase was the largest ever in the history of the ECB.
The ECB said that inflation hit 9.1% in August as rocketing prices in many staples undermined economic activity, impacting both consumers and businesses. The ECB has “significantly” increased its inflation projections, with inflation expected to average 8.1% in 2022, 5.5% in 2023, and 2.3% in 2024. Simultaneously, the ECB expects the European economy to grow by 3.1% in 2022, 0.9% in 2023, and 1.9% in 2024.
The ECB expects to continue to raise rates at the next several meetings while adjusting to data and taking a “meeting to meeting” approach.
It has been reported that Europe is heading into a recession, similar to the US. Meanwhile, the Euro has tanked versus the dollar hitting lows not seen since the turn of the century.
Geopolitical challenges pertaining to the war in Ukraine and an over-reliance on Russian oil have hammered the European economy – after several years of dealing with the COVID health crisis.
ECB President Christine Lagarde and Vice-President Luis de Guindos have scheduled a press event for later today to explain the Governing Council’s monetary policy decisions and answer questions from journalists.