The European Central Bank’s decision to raise interest rates on Thursday was not surprising. Perhaps the market was not just expecting the vigor with which central bankers did it.
ECB takes inflation seriously
The Executive Board of the European Central Bank has decided to raise its key interest rates by 0.75 percentage points. And this with effect from 14 September. This is the sharpest rate hike in 20 years. In doing so, the ECB is making it clear that it takes inflation seriously, as well as its commitment to reduce it to two percent in the foreseeable future.
“Economic actors need to understand that the ECB is serious about returning inflation to two percent,” European Central Bank President Christine Lagarde said at a press conference after the monetary policy meeting on Thursday.
Reduce inflation at all costs
According to her, reducing inflation is a primary task, even at the cost of the European economy avoiding recession. “In the baseline scenario, we don’t expect negative economic growth next year, but in the pessimistic scenario, we do,” Lagarde said. The pessimistic scenario may materialise if Russia completely cuts off gas supplies to Europe and Europe is unable to quickly find alternative suppliers.
