ECB raises interest rates by 0.25%

The European Central Bank on Thursday raised its three main interest rates by 0.25%, after analysts had been divided on whether the eurozone's central bank would issue a 10th consecutive hike or pause the increases, Report informs via DW.

The changes put the main refinancing operations rate — the fee ordinarily charged to commercial lenders to borrow money and arguably the most important of the three — at 4.25%.

The deposit facility, paid to lenders that deposit funds with the ECB on a short-term basis, rose to 4%.

And the marginal lending facility, paid by commercial lenders for short-term liquidity injections, was put at 4.5%.

The euro nudged up from a three-month low against the dollar on Thursday as traders waited on the ECB's decision.

The eurozone's interest rate setters faced a tough call, with the battle against stubborn inflation making the case for a rise and the fear that higher borrowing costs could hurt growth.

Expectations about the meeting were split between a pause in rate rises and an increase of 25 basis points. Market pricing had been leaning toward a hike.

Increasing interest rates is thought to help tame inflation, because it can discourage borrowing and spending, but it also runs the risk of stifling economic activity.

The ECB, like the central banks of many more wealthy economies, slashed interest rates to unprecedented lows at or around zero in response to the financial crash of 2008, trying to encourage spending and moderate inflation. For years, this tactic was only marginally effective so the rates remained at or around historic lows.

But a combination of factors — most notably the COVID pandemic and its aftereffects and then Russia's invasion of Ukraine, which put pressure on the prices of core goods like food and fuel — started pushing inflation past ECB targets of 2% in late 2021 and early 2022. By the summer of 2022, a few months later than the Federal Reserve in the US, the ECB began to act, increasing interest rates.