MercoPress. South Atlantic News Agency

Euro zone raises benchmark interest rate to 4,25% for the ninth time running

The Frankfurt-based bank said in a statement that while inflation is slowing, it's still expected to be “too high for too long.”

The European Central Bank on Thursday increased the key interest rate in the Eurozone by 0.25 percentage points to 4.25%. The decision to hike rates for a ninth straight time is part of the ongoing campaign to bring down inflation, but as inflation pressures show tentative signs of easing, recession worries mount.

The Frankfurt-based bank said in a statement that while inflation is slowing, it's still expected to be “too high for too long.”

ECB President Christine Lagarde told a press conference that the bank will keep an “open mind” on future rate decisions.

“We are deliberately data dependent, we have an open mind as to what the decisions will be in September and in subsequent meetings,” she said. “So we might hike and we might hold.”

Lagarde said that if the bank decided to pause its string of rate hikes, “it would not necessarily be for an extended period of time.”

The ECB is “very strongly rooted in our determination to break the back of inflation,” she added. And “we know we are getting closer,” referring the end of the ECB's rate-hike run

Raising interest rates is seen as a tool to bring down inflation because it can make loans more expensive, which in turn can slow demand and combat soaring prices.

Consumer prices in the 20-country Eurozone have been sinking since peaking in October last year, but they still climbed by 5,5% year-on-year in June. The ECB's goal is to bring inflation down to 2% in the medium term.

The bank began raising interest rates in July 2022 after Russia's war in Ukraine led to climbing energy and food prices. That followed years of near-zero and negative interest rates in the Euro area.

US Federal Reserve also raised its benchmark lending rate this week, and even suggested further hikes were on the cards. Next week is the turn of the Bank of England which is also expected to increase rates.