ECB goes on offensive as inflation soars

The European Central Bank (ECB) will raise its interest rates on Thursday for the first time after more than ten years_ but the bank is already under pressure to do more amid record inflation in eurozone.

The central bank has for months been preparing the end of the era of cheap money that supported the economy through a series of crisis in recent years.

To try and counteract a steep rise in prices the ECB has said it intends to raise its interest rates by a quarter point.
 
The bank already stopped its bond-buying stimulus programme at the beginning of July_ as it laid the groundwork for the rise. The lift-off in rates comes in response to an unprecedented surge in consumer prices_ driven further by the rising cost of energy following Russia's invasion of Ukraine.

Inflation in the eurozone sat at 8.6% last month_ the highest ever recorded for the currency club and well above the ECB's target of 2%.

The ECB continues playing catch up with its peers_ like the US Federal Reserve_ which started hiking earlier and more aggressively. The ECB deposit rate has been negative for the past eight years_ with the key rate currently at minus 0.5%.

Global commodity prices are now soaring as a result of scrambled supply chains from the Covid-19 pandemic and the burst in the price of food and energy caused by the Russia-Ukraine war.

Now_ the European Central Bank is aiming to lift interest rates out of negative territory by the end of September as part of a "gradual but sustained" series of hikes_ according to President Christine Lagarde.

Central bankers were determined to squash inflation while the eurozone economy is on the brink of recession_ circumstances under which they would normally hesitate to raise interest rates.

The outlook for the economy was clouded by the war in Ukraine with eurozone members bracing for a winter in which energy could be scarce and planning to ration supplies if Russia halts gas deliveries to the continent.