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Eurozone raises interest rates for first time in 11 years

The European Central Bank (ECB) has raised interest rates for the first time in more than 11 years as it tries to control soaring eurozone inflation.

The ECB increased its key interest rate by 0.5 percentage points to 0.0% and plans further hikes this year.

The rate has been negative since 2014 in a bid to boost the region’s economy after years of weak growth.

But consumer prices rose at a record 8.6% in the 12 months to June as food, fuel and energy costs soared.

That is well above the bank’s 2% target.

Inflation is the pace at which prices are rising. For example, if a bottle of milk costs €1 and that rises by 5 cents compared with a year earlier, then milk inflation is 5%.

The Ukraine war and Covid supply chain issues have driven up everyday costs around the world, putting pressure on households.

The European Union is vulnerable because it relies heavily on Russia for its oil and gas. This week it urged member states to begin rationing supplies amid fears Moscow will halt gas deliveries this year, causing further shortages and price spikes.

In response, central banks including the Bank of England and the US Federal Reserve have put up their rates to try and get on top of rising prices.

The idea is that by making it more expensive to borrow, people will spend less, bringing down demand and therefore prices.

However, there are concerns that higher rates could push countries into recession – which is defined as two successive quarters of economic decline.

Editing by Omotola Oguneye