The European Central Bank on Thursday took the plunge by announcing a new rate hike of 25 basis points, bringing its key rate to 3.5%.
The central bank has raised rates since July 2022 in an effort to bring down record high inflation across the European union. The latest inflation reading showed prices falling at a faster-than-expected pace, with headline inflation at 6.1% in May and core inflation, which excludes volatile items, at 5.3%. However, this is still well above the ECB's target of 2%.
An additional challenge for the ECB is lackluster growth in their region. Data released earlier this month showed 20 member unions entered a technical recession in the first quarter of the year. Gross domestic product came in at -0.1% for the three months to March, after a 0.1% contraction in the last quarter of 2022.
Weak economic performance may limit the ECB's ability to further increase interest rates as a framework to curb inflation. ECB officials have however previously suggested that it is more important to lower prices than avoid an economic slowdown.
The latest ECB decision follows the announcement that the Federal Reserve decided to leave rates unchanged. Chairman Jerome Powell said policymakers needed more information to decide their next move, but the central bank projected two more quarter-percentage-point moves by the end of the year.
