The European Central Bank announced Thursday it will raise interest rates to combat inflation, despite mounting concerns regarding a bleak economic outlook.
The bank once more raised the three key interest rates by 75 basis points, to range between 1.5 and 2.25 percent. The bank has raised interest rates three times since July, similar to other central banks around the world. The central bank also tightened the conditions for low-interest bank loans.
The bank warned eurozone governments of increasing their public debt burden at a time when authorities seek to relieve pressure on households and businesses due to the massive rise in energy prices. “Governments should pursue fiscal policies that demonstrate their commitment to gradually reduce high public debt,” Bank President Christine Lagarde told a news conference, adding that policy makers should choose “temporary” measures that target the most vulnerable.
And Lagarde announced Thursday that the prospects for short-term economic growth in the euro area tend to decline, while inflation tends to rise, once morest the backdrop of the war in Ukraine affecting economic activity.
Lagarde said that a “prolonged war in Ukraine remains a major risk” to growth in the euro zone, noting that “the possibility of inflation is more visible on the horizon.”
On Thursday morning, European shares started trading lower as investors were cautious before the European Central Bank’s decision to raise interest rates, as well as the troubled Swiss bank Credit Suisse revealed plans to restructure.
The pan-European Stoxx 600 index fell 0.3 percent following closing at a five-week high on Wednesday.
Credit Suisse shares lost 8.5 percent following it announced plans to raise 4 billion Swiss francs ($4.05 billion) by selling shares, cutting thousands of jobs and restructuring its investment bank, in an effort to recover from a series of heavy losses.
The bank’s stock was among the biggest losers on the Stoxx 600 index, falling to a two-week low.
