Fighting off a historic surge in prices, the European Central Bank has now lifted borrowing costs by a combined 425 basis points since last July
The European Central Bank raised interest rates for the ninth consecutive time on Thursday and kept the door open to further tightening as stubborn inflation and a growing risk of a recession pull policy-makers in opposing directions.has now lifted borrowing costs by a combined 425 basis points since last July, worried that excessive price growth could be perpetuated via wage rises as the jobs market remains exceptionally tight.
But the ECB’s statement dropped a reference to rates having to be “brought” to a level that cuts inflation quickly enough, a nuanced change that could be seen as a signal that further increases are not a given. “The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction,” the ECB added.
The labour market is also exceptionally tight, with record-low unemployment raising the risk that wages will rise quickly in the years ahead as unions use their increased bargaining power to recoup real incomes lost to inflation. More tightening would however be consistent with comments from a host of policy-makers, including ECB board member Isabel Schnabel, that raising rates too far would still be less costly than not lifting them high enough.
Indicators of business, investor and consumer sentiment and bank lending surveys point to a continued deterioration after the euro zone skirted a recession last winter.
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