ECB announces large rate hike to fight inflation
The European Central Bank on Thursday rolled out another bumper rate hike to combat soaring inflation, despite growing concern that the eurozone is hurtling towards a painful recession. The ECB's 25-member governing council repeated last month's unprecedented move and opted for another increase of 75 basis points, leaving its three main rates sitting in a range of between 1.5 and 2.25 percent. The hike was widely expected and comes as the Frankfurt institution faces pressure to rein in record-high inflation, mainly driven by skyrocketing energy costs in the wake of Russia's war in Ukraine. Eurozone inflation stood at 9.9 percent in September, nearly five times the ECB's two-percent target. In its statement, the ECB warned that inflation "remains far too high" in the 19-nation currency club, blaming "soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand". Like other central banks, the ECB is fighting back with a series of rate hikes intended to dampen demand by making credit more expensive for households and businesses. But higher borrowing costs also dampen economic activity, and signs are multiplying that the eurozone outlook has deteriorated. In its determination to bring down price pressures, the ECB "has turned a blind eye on recession risks", said ING economist Carsten Brzeski. Moscow's move to curb gas supplies to Europe has triggered an energy crisis on the continent, fuelling fears of power shortages and sky-high heating bills this winter. If Russia completely cuts off gas flows to Europe, the eurozone economy could shrink by nearly one percent in 2023, ECB vice-president Luis de Guindos has warned. That scenario has become more likely after Russia in late August shut down the crucial Nord Stream 1 pipeline to Europe's economic powerhouse Germany. The German economy is already forecast to shrink by 0.4 percent next year. (AFP)