The European Central Bank announced its 10th consecutive hike on its interest rate to a record high on Thursday by 25 basis points.
Prior to the announcement, economists were divided on whether the European Central Bank would actually raise the rate to a record high. The central bank raised its benchmark to 4% in the fight for persisting inflation that remained above the target price of 2%. Prices in the euro area rose at an average of 5.6% this year, while the annual inflation rate was at 5.3% in August, which was the same level as core inflation.
The euro continues to lose ground against the greenback, now down three-quarters of a cent at $1.066.
“Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target,” the central bank said in a statement.
“The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary,” it added.
The statement noted that the September ECB staff macroeconomic projections for the euro area see average inflation at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025. This is an upward revision for 2023 and 2024 and a downward revision for 2025.