European Central Bank to Raise Rates for First Time in 11 Years Next Month

The European Central Bank on late Thursday confirmed its intention to hike interest rates for the first time in more than 11 years by 25 basis points at the policy meeting next month, and it expects a further increase at the meeting in September. The ECB also lowered its growth projections.

Inflation in the euro-zone accelerated to an all-time high in May at a fresh record of 8.1 percent rise from a year earlier.

The acceleration was driven by food and energy after Russia’s invasion of Ukraine sent commodity prices soaring. A gauge that excludes volatile items like those rose 3.8 percent.

The ECB expects a further rate raise at the September meeting, although the scale will depend on medium-term inflation outlook.

“Beyond September, based on its current assessment, the Governing Council anticipates that a gradual but sustained path of further increases in interest rates will be appropriate,” the ECB said in a statement Thursday.

“In line with the Governing Council’s commitment to its 2% medium-term target, the pace at which the Governing Council adjusts its monetary policy will depend on the incoming data and how it assesses inflation to develop in the medium term.”

The ECB also slashed its growth projections and lifted its inflation expectations. Inflation is anticipated to reach 6.8 percent annually in 2022, before falling to 3.5 percent in 2023 and 2.1 percent in 2024.

The growth projections for 2022 and 2023 were lowered down significantly to 2.8 percent and 2.1 percent, respectively, while the projection for 2024 was revised up slightly to 2.1%.