The European Central Bank raises interest rates to 4%

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The European Central Bank hiked interest rates by a quarter of a percentage point to 4% Thursday, the highest level since the launch of the euro currency in 1999.

“Inflation continues to decline but is still expected to remain too high for too long,” the ECB said in a statement.

The central bank, which has now raised borrowing costs at 10 consecutive meetings, hinted at a pause in its campaign to bring price rises back to its 2% target. It said that, based on its current assessment, key interest rates “have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”

Annual inflation in the 20 countries that use the euro remained stuck at 5.3% last month as rising oil prices pushed up energy costs.

There are signs, however, that successive rate increases since July last year are constraining economic activity.

The euro area economy eked out minimal growth in the April-June period, expanding by 0.1% compared with the first quarter.

Germany fared worse: Its output was flat in the second quarter, suggesting that Europe’s largest economy is struggling to bounce back from a winter recession, when its gross domestic product shrank over two consecutive quarters.

The latest data is not encouraging either. Industrial production fell 1.1% both in the euro area and the broader European Union in July compared with June, Europe’s statistics office said Wednesday.

High inflation and the interest rate hikes needed to curb it are also likely to weigh on growth in coming months, according to the European Commission. On Monday, the EU’s executive arm downgraded its economic forecasts for this year and next, citing those two factors. It now expects the EU economy to grow 0.8% in 2023.

—This is a developing story and will be updated.


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