ECB Hikes Rates Again, Says To 'stay Course'

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2023-02-02 HKT 22:42

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  • Thursday's rate increase is the ECB's fifth in a row. Photo: AFP

    Thursday's rate increase is the ECB's fifth in a row. Photo: AFP

The European Central Bank raised interest rates again on Thursday and signalled it would "stay the course" in its monetary policy tightening, even as sky-high inflation starts to slow.

The ECB lifted its key rates half a percentage point, as widely expected, seeking to curb soaring prices of energy and food fuelled by Russia's war in Ukraine.

The Frankfurt-based institution now has raised borrowing costs three percentage points since launching its unprecedented campaign of monetary tightening in July.

Also on Thursday, the Bank of England hiked rates for a 10th time in a row, while America's Federal Reserve raised borrowing costs again Wednesday – albeit at a slower pace.

Signs are growing the eurozone may have passed the worst of an economic shock, with inflation slowing from a peak in October and the single currency area eking out growth at the end of 2022.

But making its latest rate hike, the bank said it would "stay the course in raising interest rates significantly at a steady pace", repeating the same hawkish language used after its December meeting.

The ECB "intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March, and it will then evaluate the subsequent path of its monetary policy", it said.

While consumer price growth in the 20-nation currency club has eased, at 8.5 percent, it is still way above the ECB's two-percent target.

Thursday's rate increase was the ECB's fifth in a row.

Its three key rates now sit in a range between 2.50 and 3.25 percent.

It followed a half point hike in December, but was lower than two jumbo 75 basis point increases before that.

There is already debate developing among policymakers about when to start slowing the pace, however.

The recent less gloomy data have given cause for hope that Russia's efforts to strangle crucial gas supplies to Europe may not trigger the economic shock once feared.

As Moscow slashed deliveries following its attack on Ukraine, European governments rolled out relief measures to cushion consumers and businesses from surging prices, and rushed to fill up storage facilities.

Wholesale gas prices have been easing while relatively mild winter weather has meant supplies have not been used up as quickly as expected.

Analysts hope that other factors, such as easing supply chain problems and the reopening of China's Covid-hit economy, are now offsetting the fallout from Ukraine.

Signs of weakness are still causing concerns, however.

Europe's top economy, Germany, unexpectedly contracted at the end of 2022, signalling it may be about to tip into recession.

But it is expected to be a shallow contraction, and the government has forecast the economy will expand slightly over 2023 as a whole.

While the ECB has stressed its determination to bring inflation back to target, policymakers are walking a fine line – seeking to tighten enough but not so much that it dramatically deepens economic pain across Europe. (AFP)

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