The European Central Bank (ECB) on Thursday announced that while interest rate would remain unchanged for the next month, there would be a hike in July, the first in over a decade.
The ECB also announced that it will end its bond buying stimulus program, sometimes also called quantitative easing, amid concern over the growing pace of inflation in the eurozone. This program essentially involves pumping more money into the economy, fueling inflation.
What has led to the decision?
Prices for goods and services in the eurozone have reached record highs amid spiraling energy prices caused partly by the conflict in Ukraine.
“Russia’s unjustified aggression towards Ukraine continues to weigh on the economy in Europe and beyond. It is disrupting trade, is leading to shortages of materials, and is contributing to high energy and commodity prices,” the ECB said in a statement.
“These factors will continue to weigh on confidence and dampen growth, especially in the near term,” the ECB warned.
Growth forecasts have also been downgraded for 2022, down to 2.7% from a previous estimate of 4% in May.
On Tuesday the World Bank cut its outlook for economic growth to 2.9% from 4.1% it was predicting in January.
An interest rate hike in July will follow a global trend as seen in the US where the Federal Reserve hiked rates for the in May for the first time since 2000. Analysts are also expecting the Fed to hike interest rates by half a point for three more meetings in a bid to taper consumer prices.
The Bank of England has approved rates hikes four times since December.
kb/msh (AFP, AP)
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