Eurozone raises interest rates for first time in 11 years

July 25, 2022

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The European Central Bank (ECB) has raised interest rates for the first time in more than 11 years as it tries to control soaring eurozone inflation levels.

The ECB increased its key interest rate by 0.5 percentage points to 0.0% and plans further hikes this year. The rate has been negative since 2014 in a bid to boost the region's economy after years of continued weak growth.


But consumer prices rose at a record 8.6% in the 12 months to June as food, fuel and energy costs soared, well above the bank's 2% target. 


This rise comes after the Bank of England and the US Federal Reserve also put up their rates to try and rein in the rising prices.


The Ukraine war and Covid supply chain issues have dramatically driven up everyday costs across the world, putting pressure on households and businesses alike.


The eurozone is particularly vulnerable because it relies heavily on Russia for its oil and gas supplies. This week it urged member states to begin rationing supplies amid fears Moscow will halt gas deliveries this year, causing yet further price spikes.


Explaining its decision to raise rates, the ECB justified that slowing economic activity is directly linked to Russia's unjustified aggression towards Ukraine, which has become an ongoing source of drag on growth.


Experts are predicting inflation to remain undesirably high for some time owing to continued pressure from energy and food prices alongside pipeline pressures in the pricing chain.


However, there are concerns about how these higher borrowing costs will affect highly indebted European nations, including Italy and Greece.

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