European Central Bank President Christine Lagarde said Thursday the bank is raising three key interest rates in a continuing battle against inflation. Photo by Erik S. Lesser/EPA-EFE
May 4 (UPI) -- The European Central Bank Thursday raised three key interest rates by 25 basis points in an effort to deal with ongoing high inflation pressures. Eurozone inflation hit 7% in April, reversing five straight months of inflation declines.
"Headline inflation has declined over recent months, but underlying price pressures remain strong," the ECB said in a statement. "At the same time, the past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain."
The increase brings refinancing rates to 3.75%, marginal lending rate to 4% and the deposit rate to 3.25% effective May 10.
The ECB action follows Thursday's interest rate hike by the Federal Reserve that brought U.S. interest rates to the highest in 16 years.
Food, alcohol and tobacco were the largest drivers of Europe's inflation followed by energy. Food inflation slowed somewhat in Europe to 13.6% from 15.5% in March.
During a press conference statement ECB President Christine Lagarde said, "Our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our two percent medium-term target and will be kept at those levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction."
She said in the statement that the ECB's interest rate hikes "are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain."
Going forward, Lagarde said decisions on rates will continue to be based on assessments of the inflation outlook in light of the incoming economic data, the dynamics of underlying inflation and the strength of monetary policy transmission.
The ECB also said it will continue to reduce the asset purchase program "at a measured and predictable pace." The ECB's Governing Council expects to discontinue reinvestments in that program by July.