European Central Bank Delivers Forecast-Beating Rate Hike as Inflation Soars

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Policymakers at the European Central Bank (ECB) decided to raise the benchmark interest rate by 50 basis points on July 21, exceeding market expectations and marking the first time in 11 years that the bloc’s monetary authorities have hiked rates.

The move brings the ECB’s policy rate up to zero percent from negative territory, where rates had been pegged for the past eight years in a bid to stimulate sluggish growth in the 19 nations that share the euro currency.

The decision to raise rates puts the ECB in the company of other major central banks that have, with the notable exception of the Bank of Japan, moved to tighten monetary settings in a bid to quell soaring inflation.

A confluence of factors, including supply chain dislocations, the post-pandemic rebound in demand, and an energy crisis compounded by the war in Ukraine, have pushed annual inflation in the euro area to 8.6 percent, the highest on record.

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