European Central Bank Raises Rates by a Half-Point


After an initial slow start withdrawing easy money last year, the central bank began raising interest rates in July. Since then, it has undertaken the fastest pace of monetary tightening in the bank’s two-decade history.

Christine Lagarde, the bank’s president, stressed in a news conference Thursday that the E.C.B. remained resolved to raise interest rates to the point where they would restrain economic activity and “once we are there, stay sufficiently” so interest rates return inflation to 2 percent in the medium term.

The challenge policymakers around the world face this year is determining when to halt rate increases. There are signs that inflation has peaked in the United States, Britain and many eurozone economies. At the same time, central banks are aware of the lag effect in monetary policy, which means much of the effect of last year’s rate increases still haven’t been felt in the economy. Traders are now betting that most major central banks will only raise rates a few more times this year.

Andrew Bailey, the governor of the Bank of England, said Thursday that “we have seen a turning of the corner” on inflation. “But it’s very early days and the risks are very large.”

The Bank of England’s policymakers softened their tone on future interest rates increases, which some analysts took as an indication that the end of this tightening cycle is approaching. But Ms. Lagarde kept up her more aggressive stance, and said that even beyond March more rate increases are likely.

“We know that we have ground to cover,” she said. “We know that we are not done.”

European policymakers remain worried that inflation in the region could last longer than expected, especially because the tight labor market is pushing up wages. Although wages are not rising fast enough to keep up with inflation and prevent households from a loss of purchasing power, there are concerns that wage agreements are rising in a way that would be inconsistent with inflation quickly returning to the central bank’s 2 percent target.

In addition, Ms. Lagarde reiterated her concerns that government fiscal supports, especially those designed to shield households from high energy costs, could add to inflationary pressures if they didn’t adjust to the fact that natural gas prices are lower than when these policies were set.


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