ECB raises interest rates by 50 bps to 3.5%


The euro rose against the US dollar as the European Central Bank raised interest rates as planned by 50 basis points despite the current banking crisis.

The ECB raised interest rates to 3.5% from a previous 3% in a bid to cool inflation. The central bank has raised rates at the fastest pace on record and faced calls by some investors to hold back on policy tightening until turmoil in the banking sector eases.

While it is too early to predict future rate moves, ECB President Christian Lagarde stated that the ECB will take a data-dependent approach in regards to further rate hikes. She went onto say the main aim is to bring inflation back to the 2% target but the pace of further rate hikes will be dependent on economic and financial data.

Economic growth forecasts have been revised and Lagarde predicts it’ll get worse before it gets better, stating that the current market conditions will dampen both consumer and business confidence.

Furthermore, the ongoing war between Russia and Ukraine continues to be a downside risk to the EU economy and could again push up the cost of energy and food.

Lastly, she stated that the labour market remains strong with wages rising and energy prices falling now – this is likely to give more purchasing power to households and could lead to economic activity picking up in the quarters ahead.