In response to mounting concerns about rising consumer prices, the European Central Bank (ECB) has implemented its tenth consecutive interest rate hike, potentially concluding a series of measures aimed at reining inflation.
European Union policymakers raised interest rates by an additional quarter percentage point, pushing the closely monitored benchmark to 4%.
This level marks the highest since the euro’s inception in 1999. Just 14 months ago, the rate was at a historic low of minus 0.5%, forcing Eurozone banks to pay to deposit their funds with the regulator.
The decision to increase rates followed shortly after an ECB report adjusted its macroeconomic forecasts for the euro area. The report anticipates an average inflation rate of 5.6% in 2023, up from the previous projection of 5.4% and 3.2% for the following year, compared to the prior estimate of 3%.
However, the report revised its medium-term forecast slightly downward, from 2.2% to 2.1%.
Despite the slight decline in inflation, the ECB emphasized its commitment to addressing persistently high inflation levels.
The governing council aims to promptly steer inflation back toward its medium-term target of 2%.
The European Union has been grappling with surging inflation rates, driven primarily by soaring energy prices. The ECB initiated its most aggressive rate-hiking cycle on record in July 2022, responding to the substantial increase in gas prices caused by sanctions against Moscow, which disrupted trade between Russia and the EU.