The European Central Bank (ECB) on Thursday announced that while the interest rate would remain unchanged for the next month, there would be a hike in July, the first in over a decade.
The ECB also announced that it will end its bond buying stimulus program, sometimes also called quantitative easing, amid concern over the growing pace of inflation in the eurozone. This program essentially involves pumping more money into the economy, fueling inflation.
What has led to the decision?
Prices for goods and services in the eurozone have reached record highs amid spiraling energy prices caused partly by the conflict in Ukraine.
"In May, inflation again rose significantly, mainly because of surging energy and food prices, including due to the impact of the war. But inflation pressures have broadened and intensified, with prices for many goods and services increasing strongly. Eurosystem staff have revised their baseline inflation projections up significantly," ECB President Christine Lagarde said during a press conference.
In a tweet, the ECB said it expected inflation to remain high for some time before coming down to the 2% target.
Lagarde also spoke about Russia's war in Ukraine and said it was having global ramifications.
"Russia’s unjustified aggression towards Ukraine continues to weigh on the economy in Europe and beyond. It is disrupting trade, is leading to shortages of materials, and is contributing to high energy and commodity prices," Lagarde said.
Growth forecasts have also been downgraded for 2022, down to 2.7% from a previous estimate of 4% in May.
On Tuesday, the World Bank cut its outlook for economic growth to 2.9% from 4.1% it was predicting in January.
The planned interest rate hike in July follows a global trend as seen in the United States where the Federal Reserve hiked rates for the in May for the first time since 2000.
Analysts are also expecting the Fed to hike interest rates by half a point for three more meetings in a bid to taper consumer prices.
The Bank of England has approved rates hikes four times since December.
kb/msh (AFP, AP)