London Daily

Focus on the big picture.
Sunday, Feb 16, 2025

European Central Bank raises interest rates by unprecedented 75 basis points

European Central Bank raises interest rates by unprecedented 75 basis points

The eurozone's central bank announces its biggest interest rates increase as inflation sits at record levels and the 19 countries that use the euro head for a recession.

The European Central Bank (ECB) has hiked its key interest rates by an unprecedented 75 basis points, signalling that further rises are likely.

On Thursday afternoon, the bank - which makes monetary policy for the eurozone and the European Union - lifted the deposit rate from zero to 0.75% and the main refinancing rate was lifted to 1.25%, the highest level since 2011.

It comes as inflation is at a half-century high, and as the bloc heads for a likely winter recession.

In a statement, the ECB said: "Over the next several meetings the Governing Council expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations."

The bank has revised its economic forecast, projecting inflation averaging 8.1% this year, 5.5% in 2023, and 2.3% in 2024.

Inflation was initially driven by energy prices - exacerbated by Russia's invasion of Ukraine - but it is also being fuelled by the drought seen in recent months.

The ECB said: "Price pressures have continued to strengthen and broaden across the economy and inflation may rise further in the near term.

"This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB's 2% medium-term target."

The ECB has forecast GDP growth at 3.1% this year - up from the 2.8% projection it made in June, but it cut its 2023 forecast from 2.1% to 0.9%.

'Euro slide putting upward pressure on inflation'


Rob Clarry, investment strategist at Evelyn Partners, said: "While eurozone inflation has largely been driven by supply side challenges rather than excessive demand, the ECB has acted firmly as it looks to avoid expectations of higher inflation from becoming entrenched.

"Another crucial reason is to try and halt the euro's slide against the US dollar given that this has put further upward pressure on inflation.

"Fundamentally, it appears that the ECB is taking a similar stance to the Bank of England and the Federal Reserve: tackling inflation at the expense of economic growth.

'Positives we can draw on'


"While the economic outlook appears challenging there are some positives we can draw on.

"First, the eurozone has made good progress in replenishing its gas stocks ahead of winter; whether this will be enough depends on ongoing flows and the winter weather.

"Second, it looks like there's a consensus emerging around the bloc that governments need to support households by subsidising energy bills.

"Indeed, this week we saw Germany (€65bn), Portugal (€2.4bn) and the Netherlands (€16bn) announce support packages.

"This should prop up consumer spending as the eurozone looks to avoid a prolonged economic contraction."

In currency trading, the euro initially went above parity against the dollar, but has since weakened. The pound hit a fresh two-and-a-half month low of 86.95 pence per euro early in the day before recovering a little.

Newsletter

Related Articles

0:00
0:00
Close
Elon Musk is Sherlock Holmes - Movie Trailer Parody featuring Donald Trump's Detective
Trump's Greenland Suggestion Sparks Sovereignty Discussion Amidst Historical Resentments
California's CalExit Movement Gathers Momentum Amid Ongoing Political and Economic Discussions in the State.
USAID Revealed: American Tax Dollars Utilized to Erode Democracy in Europe Until Trump Put a Stop to It
Pam Bondi Leaves Congress in Utter Shock with a Stunning Rebuttal of Adam Schiff.
Trump's Press Secretary SLAMS Republican Mitch McConnell for Opposing Tulsi Gabbard.
Brand Finance Unveils its Rankings of the Best CEOs for 2025: Satya Nadella Takes the Lead
Steering Through the Updated Chain of Command at the European Commission
Parliamentarian Advocates for Preservation of AI Liability Directive
Mark Rutte Calls on NATO Allies to Increase Defence Expenditure
Dresden Marks the 80th Anniversary of the World War II Bombing
Global Community Pledges to Assist Syria's Political Transition
EU Activates €200 Billion for AI Investment and Introduces €20 Billion Fund for Gigafactories
EU Recognizes Difficulty in Closing the USAID Funding Shortfall Due to Stalled US Aid
Commission President von der Leyen Not Present at Notre Dame Reopening Due to Last-Minute Cancellation
EU Establishes Disinformation Code for Online Platforms, Leaving Out X
EU Lags in Enforcing Essential Cybersecurity Directives
EU Under Fire for Streamlining Discussions on Corporate Sustainability Reporting
Shein Receives Further Information Request from EU During Ongoing Investigation
European Commission Initiates Investigation into Shein While Focusing on Chinese E-Commerce Regulations
Trump's special envoy for hostage affairs cautions Hamas against challenging Trump before Saturday's deadline.
Ukraine Confirms Territorial Loss in Russia's Kursk Region
Trump Declares Reciprocal Tariffs as Trade Conflict Intensifies
California Congressman Robert Garcia's Threats of Utilizing Weapons Against Elon Musk
Trump and Putin Address Ukraine Peace Negotiations in Response to Worldwide Reactions
Honda and Nissan Conclude Merger Talks
New York Fashion Week Highlights Iconic Returns and Emerging Talents
Trump Proposes Including Ukraine in Peace Talks to Settle the Conflict
Trump Supports Russia's Reinstatement in G7 Amid Continuing Diplomatic Strains
Zelensky Warns Against Placing Trust in Putin as Peace Negotiations Progress
MI5 Acknowledges Submitting False Evidence in Court Concerning Neo-Nazi Informant
Trump Asserts BRICS 'Is No More' in Light of Tariff Threats.
UK Introduces New Citizenship Restrictions for Refugees Who Arrive Illegally
Stoke-on-Trent Schools Face 'Astronomical' Repair Costs Amid PFI Contract Challenges
Employment Tribunal Reviews Use of Female Changing Room by Transgender Doctor
Projected Costs and Funding Dynamics of the NHS: An In-Depth Analysis
Scrutiny Over Rachel Reeves' Career and Expenses Claims Ahead of Ministerial Role
Sue Gray Introduced as Baroness Gray of Tottenham in the House of Lords
Fire Engulfs Primary School in Wales, Leading to Evacuations
Two British citizens apprehended in Iran amidst rising tensions.
Inquest Reveals Manipulation and Harassment Faced by Soldier Before Death
UK Economy Registers Unexpected Growth in Final Quarter of 2024
Ukraine's Role Central to Peace Negotiations, Asserting Global Sentiment
Winter Pressures Unfold at Royal Free Hospital Amid NHS Strain
Rachel Reeves's CV and Expenses Scrutiny Following BBC Investigation
Trump's Tariffs Loom Large Over Significant German Trade Exhibition
President Trump Resolves Legal Disputes with X and Meta Regarding Social Media Bans
OpenAI Modifies Approach in Response to Increasing AI Competition
Amazingly Good News for USA and the World: Gabbard Confirmed as U.S. Intel Chief in Latest Victory for Trump!
UK Business Leaders Expect Profit Increase Despite Regulatory Crackdown on the Shadow Economy
×