EU bank imposes biggest interest rate rise in 20 years

The European Central Bank increased interest rates for the first time in 11 years yesterday in an attempt to cool inflation in the eurozone.

- ALASTAIR JAMIESON, DAVID MCHUGH

 It raised rates by 50 basis points to Opc - its biggest rise since 2000 – raising fresh fears that major economies could be plunged into recession at the cost of easing prices for households on food, fuel and everything in between.

The ECB’s surprise hike for the 19 countries using the euro currency is expected to be followed by another increase in September, possibly of another half a point. Bank president Christine Lagarde had indicated a quarter-point hike last month.

She said yesterday that the bigger hike was unanimous as “inflation continues to be undesirably high and is expected to remain above our target for some time”. As the bank leaves an era of negative interest rates, Lagarde said the forecasts don’t point to a recession this year or next but she acknowledged the uncertainty ahead.

“Economic activity is slowing. Russia’s unjustified aggression towards Ukraine is an ongoing drag on growth,” the ECB chief said. Higher inflation, supply constraints and uncertainty “are significantly clouding the outlook for the second half of 2022 and beyond”.