The European Central Bank (ECB) today hiked interest rates by the biggest amount since its creation in 1999 as it steps up its fight against a historic inflation surge on the Continent.
President Christine Lagarde and co lifted borrowing costs in the bloc of 19 countries using the euro 75 basis points.
The move takes eurozone rates to 0.75 per cent and follows another unprecedented 50 basis points hike in July.
The “major step frontloads” the ECB’s campaign towards its goal of hoisting policy out of “highly accommodative” territory, the monetary authority said in an announcement today.
Central banks across the world have been forced to ditch the ultra-stimulative policy stance that propped up the global economy since the financial crisis to tame scorching inflation.
Prices in the eurozone are up 9.1 per cent over the last year, the quickest acceleration on record, led higher by Russia’s invasion of Ukraine jolting the European energy market.
European gas prices have screeched higher in recent months due to the likes of Germany, Italy and France scrambling to replace Russian energy.
The bloc is likely to slump into a tough and long recession starting this year due to businesses and households cutting economic activity in response to higher energy prices.
Eurozone interest rates have been held lower compared to the US and UK for around the past decade.
They had been negative since 2014 until the ECB shocked markets with a bigger than expected move in July.
The euro has kissed parity with the US dollar a few times this summer, driven by investors fleeing the ailing Continent and capitalising on the Federal Reserve’s rapid tightening cycle.
Euro/US dollar exchange rate this year
The currency bumped higher against the greenback in response to the rate rise bazooka. The pan-European Stoxx 600 index was flat.
On these shores, the Bank of England is expected by the City to also send rates 75 basis points higher next Thursday, which would be the biggest move in its 25 years of independence.