The move poised new questions about whether the rush to make credit more expensive will plunge major economies into recession at the price of fighting inflation.
FRANKFURT—The European Central Bank raised interest rates Thursday for the first time in 11 years by a larger-than-expected amount, joining steps already taken by the U.S. Federal Reserve and other major central banks to target stubbornly high inflation.
The bigger hike was justified by an “updated assessment of inflation risks,” the ECB said, and means the bank leaves an era of negative interest rates. Recession concerns have helped push the euro to a 20-year low against the dollar, which adds to the ECB's inflation fighting task by worsening already high energy prices. That is because oil is priced in dollars.
The goal for all central banks is to get inflation back down to acceptable levels — for the ECB, it's 2% annually — without tipping the economy into recession. It's difficult to get right as central banks reverse what has been a decade of very low rates and inflation. The ECB increase is the first since 2011.
Rising interest rates follow the end of the bank's 1.7 trillion euro stimulus program that helped keep longer-term borrowing costs low for government and companies as they weathered the pandemic recession.
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