Frankfurt, Sep 9:The European Central Bank (ECB) has hiked interest rates across the eurozone by a record amount, as policymakers try to curb inflation, a media report said. The ECB’s governing council has voted to raise all three key interest rates by 75 basis points, or 0.75 percentage points – a bigger hike than ever before, The Guardian reported.
This pushes the ECB’s ‘main refinancing rate’ to 1.25 per cent, up from 0.5 per cent, while the ‘marginal lending rate’ paid by banks borrowing from the ECB went up to 1.25 per cent. The deposit facility (paid on bank deposits) has been hiked to 0.75 per cent from 0 per cent (it was negative until late July, when the ECB started raising rates).
It also plans to continue lifting interest rates, after inflation hit a record high of 9.1 per cent in August. ECB President Christine Lagarde has also warned that inflation is “still predominantly a supply driven-phenomenon” – affected by factors beyond the central bank’s control.
She explained, “I cannot reduce the price of energy. I cannot convince the big players of this world to reduce gas prices. I cannot reform the electricity market. And I am very pleased to see that the European Commission is considering steps to that effect because monetary policy is not going to reduce the price of energy.”
Christine Lagarde said she takes the blame for the ECB’s failure to forecast the full extent of the jump in inflation this year. She says those errors were ‘predominantly related to energy’, pointing out that certain events (such as the Ukraine war, the pandemic, and the cuts to gas supplies) couldn’t be anticipated.
“I take the blame, because I’m the head of the institution. Yes, we made forecasting errors, but those errors were made by all forecasters. We are not very different to them,” Lagarde said.
