The European Central Bank raised its benchmark rate of interest by three-quarters of some extent on Thursday, and said that it expected to proceed raising them in the longer term. The central bank also published a latest set of economic forecasts.
The E.C.B. “expects to boost rates of interest further,” the central bank said in an announcement, “because inflation stays far too high.” Consistent with other central banks, the E.C.B. said that its future decisions could be “data-dependent,” meaning fresh numbers on things like inflation and jobs shall be essential for determining the following step the central bank takes.
Policymakers significantly raised the forecast for inflation, with the central bank predicting a median inflation rate within the eurozone of 8.1 percent in 2022, 5.5 percent in 2023 and a couple of.3 percent in 2024. That implies that prices are projected to rise faster than the central bank’s 2 percent goal for the following two years.
The eurozone economy is predicted to “stagnate” later this yr and early in 2023, the central bank said. Economic growth is forecast to fall to 0.9 percent in 2023 from 3.1 percent in 2022, before recovering to 1.9 percent in 2024.
There’s a “really dark downside scenario,” Christine Lagarde, the president of the E.C.B. said at a post-meeting news conference, with a protracted war in Ukraine and shutdown of energy flows from Russia presenting “a major risk to growth,” potentially resulting in a recession next yr.
The E.C.B. intends to proceed reinvesting proceeds from maturing bonds bought to assist prop up financial markets, most recently throughout the pandemic, deviating from the practice on the Federal Reserve, which has begun to scale back the scale of its balance sheet by letting maturing bonds mature without being replaced.
Financial markets turned lower as Ms. Lagarde answered questions and provided more context to the speed increase and forecast revisions, noting concerns over growth and inflation. European stocks fell, the euro weakened and government bond yields rose.