- In July, it saw a half-point uptick—the first increase in 11 years.
- Lagarde predicts a significant slowdown in economic activity.
Following a trend of interest rate increases from major central banks across the world, the European Central Bank decides to do the same. Since the beginning of this month, the euro has lost value relative to the dollar. On Monday, though, it was selling for less than $0.99 for the first time in over 20 years.
For this country, the most recent increase in interest rates from the European Central Bank is unprecedented. The decision to increase interest rates was announced on Thursday and it was raised by 75 basis points. It seems that the basis for the rate rises is the skyrocketing inflation and the need to keep it under control.
Sluggish Economic Activities
Christine Lagarde, head of the European Central Bank, has said that the bank would raise interest rates during the next few sessions. The central bank believes inflation “is likely to stay above our target for a prolonged period.” In July, it saw a half-point uptick—the first increase in 11 years.
Moreover, Lagarde predicts a significant slowdown in economic activity for the remainder of the year and expects energy costs to remain high. The bank’s hefty interest rate hike is meant to increase borrowing costs for consumers, companies, and governments. To counter rising prices, the Federal Reserve announced in July that it will raise interest rates by 75 basis points.
Following the decision by authorities to increase interest rates in an effort to relieve pressure on the economy and the public’s wallets, inflation soared to record levels. The action demonstrates the Fed’s commitment to reducing inflation, which recently hit 9.1 percent, the highest level in recorded history.
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