FRANKFURT – The European Central Bank raised interest rates by a record 75 basis points as new forecasts show inflation remaining above the bank’s 2-percent target for years to come.
“The Governing Council decided to raise the three key ECB interest rates by 75 basis points,” the ECB said in a statement.
“The Governing Council took today’s decision, and expects to raise interest rates further, because inflation remains far too high and is likely to stay above target for an extended period,” it went on.
New interest rates will be effective as of 14 September 2022.
Ahead of the announcement, analysts said it was a close call whether the Governing Council would hike by 50 basis points or 75 basis points.
The decision for the more aggressive hike is supported by a new round of economic forecasts which now show inflation topping the ECB’s price stability target until at least 2024 and still sees no recession as the base case scenario.
According to the statement, ECB staff have significantly revised up their inflation projections and inflation is now expected to average 8.1 percent in 2022, 5.5 percent in 2023 and 2.3 percent in 2024.
At the same time, staff said it now expects the economy to grow by 3.1 percent in 2022, 0.9 percent in 2023 and 1.9 percent in 2024.
The latest projections may not fully incorporate Russia’s decision earlier this week to shut a major gas pipeline, Nord Stream 1, to Europe in a move that may push inflation even higher and weigh on growth.
The ECB assured that the “Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2% target over the medium term.”