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The European Central Bank lifted its key interest rate by a quarter of a percentage point on Thursday, declining to follow the Federal Reserve’s decision to take a break from its campaign to hike borrowing costs.
A year after the ECB started lifting rates, the euro area economy—comprising the 20 nations that use the single currency—has fallen into recession. But the inflation rate still tops 6%, remaining well above the ECB’s 2% goal. In the U.S., the comparable rate is 4%.
Unless there is a “material change to our baseline, we will continue to hike at our next meeting,” President Christine Lagarde said at a press conference. “We’re not thinking of pausing,” she added.
The bank’s staff revised up projections for core inflation this year and next and slightly lowered their forecasts for economic growth.
The ECB slowed the pace of its increases in May, and this quarter-point increase brings the total amount of tightening since July of last year to 4 percentage points.
The ECB started to turn the screws on rates four months after the Fed, one explanation for why inflation remains higher in Europe.
While energy prices in Europe have fallen substantially after spiking when Russia invaded Ukraine last year, services inflation and wage growth have strengthened. Similar to the U.S., unemployment is historically low in the euro region. That makes it easier for workers to bid up their pay, which risks further embedding faster price gains in the economy.
“Inflation has been coming down but is projected to remain too high for too long,” the ECB said in a statement with the decision. It will be “data dependent” in future decisions, it said.
Write to Brian Swint at [email protected]
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