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EU Central Bank Raises Rates 0.5%, Warns More

  • The ECB bucked the Federal Reserve and raised its benchmark interest rate by 0.5% in March.

  • After the European Central Bank hiked its benchmark rate by 0.5%, President Christine Lagarde expected more changes.

EU Central Bank Rais

President Christine Lagarde anticipated further adjustments after the European Central Bank raised its benchmark interest rate by 0.5%.

The European Central Bank (ECB) defied the Federal Reserve and announced it would raise its benchmark interest rate by 0.5% points in March. This was done because it is predicted that rapid economic openness in China and robust economic development in the eurozone will maintain high inflation.

Fifth rate increase by the ECB

The European Central Bank (ECB) has begun hiking interest rates at a record pace in an effort to combat an unanticipated rise in high inflation in the eurozone. This was caused, among other things, by the aftermath of the Covid-19 outbreak and the energy crisis that followed Russia's invasion of Ukraine. With this move, the ECB raises its benchmark rate to 2.5%, the highest level since 2008. It continues to be well below the rates set by the Fed, which raised them to 4.75% to 4.50% on Wednesday, and the Bank of England, which raised them to 4% earlier on Thursday.

The nation's top central bank stated in a statement that it will not deviate from its objective of maintaining rising interest rates. Interest rates will be increased by another half percentage point in March, according to the ECB. The ECB will then assess the future course of its monetary policy after that.

This strongly predicts that the European Central Bank (ECB) will raise interest rates in the coming months with greater vigour than the Federal Reserve and the Bank of England. It is highly possible that the effects of its actions will be felt throughout the financial markets, driving up the value of the euro and increasing the price of bonds issued in the eurozone.

Worries about inflation are growing.

The inflation rate in the Eurozone, which was higher than the 6.5% inflation rate in the US for December, decreased to 8.5% last month from a record high of 10.6% in October. As global supply limitations have eased, the price of imported products, especially energy, has decreased. Additionally, the euro has strengthened during the past three months, rising from less than $1 to roughly $1.10. Lower energy prices in Europe are partly a result of low gas storage levels and a warm winter there.

On the other hand, the Monetary Policy Committee increased the main bank rate in England by a half-point to 4% by voting 7-2 to do so. However, the committee hinted in its conclusion that future rate increases might be more gradual. The annual CPI inflation is expected to drop to about 4% by the end of this year, according to the Bank of England, along with a projected output decline that is expected to be much smaller than that predicted in the November Report.

The Bank of England updated its assessment of the economy on Thursday, saying it now anticipates a recession that will be milder and shorter than the one it had anticipated in November 2022.

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