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ECB hikes interest rate to 4.25% to combat inflation

July 27, 2023

The European Central Bank has lifted interest rates nine times in a row over the past year in an effort to curb persistently high inflation.

A huge euro logo is seen in front of the headquarters of the European Central Bank (ECB)
The ECB began raising interest rates in July 2022 after Russia's war in Ukraine caused prices to surgeImage: Ralph Orlowski/Getty Images

The European Central Bank (ECB) on Thursday increased the key interest rate in the eurozone by 0.25 percentage points to 4.25%.

The decision to hike rates for a ninth straight time is part of an ongoing campaign to bring down inflation.

The Frankfurt-based bank said in a statement that while inflation is slowing, it's still expected to be "too high for too long."

ECB President Christine Lagarde told a press conference that the bank will keep an "open mind" on future rate decisions.

"We are deliberately data dependent, we have an open mind as to what the decisions will be in September and in subsequent meetings," she said. "So we might hike and we might hold."

Lagarde said that if the bank decided to pause its string of rate hikes, "it would not necessarily be for an extended period of time." 

The ECB is "very strongly rooted in our determination to break the back of inflation," she added.

Why is the ECB raising rates?

Raising interest rates is seen as a tool to bring down inflation because it can make loans more expensive, which in turn can slow demand and combat soaring prices.

Consumer prices in the 20-country eurozone have been sinking since peaking in October last year, but they still rose by 5.5% year-on-year in June. The ECB's goal is to bring inflation down to 2% in the medium term.

The bank began raising interest rates in July 2022 after Russia's war in Ukraine led to climbing energy and food prices. That followed years of near-zero and negative interest rates in the euro area.

The US Federal Reserve also raised its benchmark lending rate this weekl and suggested further hikes were on the cards.

nm/fb (dpa, AFP, Reuters)