The European Central Bank (ECB) has confirmed it will raise interest rates in a bid to bring down soaring prices across the eurozone.
The hike will be of 0.25 percentage points, in line with what most analysts had expected, and will take place in July, ECB President Christine Lagarde said on Thursday.
Another hike will happen in September, which might be larger than 0.25 if inflation “persists or deteriorates.”
The announcement marks the first increase in interest rates since 2011 and closes a long chapter of loose monetary policy.
“High inflation is a major challenge for all of us,” Lagarde said after a meeting of the Governing Council in the Netherlands. “Based on our current assessment, we anticipate that a gradual but sustained path of further increases in interest rates will be appropriate.”
For months, Lagarde had used the word “temporary” to describe rising inflation. But after Russia launched its invasion of Ukraine, economic forecasts were turned upside down and the trend further exacerbated.
Pushed by the war, a persistent power crunch, and fresh supply chain disruption, inflation in the eurozone hit a record-breaking 8.1 percent in May, four times the 2 percent annual target desired by the central bank.
Consumers and companies are now faced with unpredictable prices, putting policy-makers under pressure to deliver tangible solutions, even if there’s little they can do in the short term to make a difference.