The European Central Bank (ECB) put the cart before the horse in its meeting with the Federal Reserve, raising its key interest rate by 0.5% and said it would implement a similar rate hike in March. This is due to strong economic growth in the eurozone and the rapid restart of the Chinese-led economy, which is expected to keep inflation high.

The European Central Bank raised interest rates for the fifth time

The ECB has been raising interest rates at a record pace in response to sudden high inflation in the eurozone. This is also a by-product of a series of factors, including the aftermath of COVID-19 's epidemic and the energy problem after Russia's invasion of Ukraine. Under the move, the ECB raised its standard interest rate to 2.5%, the highest since 2008. That is still well below the interest rate set at the Fed meeting, which pushed it to 4.75% to 4.50% on Wednesday and the Bank of England to 4% earlier on Thursday.

The key central bank announced in a statement that it would not deviate from its plan to raise interest rates again. The ECB has indicated that it intends to raise interest rates by another 0.5 per cent in March, after which it will assess the future development of its monetary policy.

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This clearly suggests that the European Central Bank (ECB) will be more determined to raise interest rates in the coming months than the Federal Reserve meeting and the Bank of England. Its selection is likely to cause a chain reaction in all financial systems, pushing up the value of Europe and putting pressure on the pricing of publicly issued bonds in the eurozone.

Anxiety about inflation is growing.

Inflation in the euro zone fell to 8.5% last month from a record 10.6% in October, higher than the 6.5% inflation rate abroad in December. Relatively low natural gas storage capacity and the warmest winter in Europe have helped reduce energy costs in Europe, but as global supply restrictions relieve pressure, the prices of imported goods, especially electricity, have fallen significantly. The European exchange rate against the dollar rose to about $1.10 from less than $1 in the previous three months.

On the other hand, the US Monetary Policy Committee, by a vote of 7 to 2, raised the interest rates of major financial institutions by 0.5 percentage points to 4%. However, the federation hinted in its confirmation announcement that future conferences may see some smaller interest rate increases. The report quoted the Bank of England as saying:

The annual CPI inflation rate is expected to fall to around 4% by the end of this year, while the decline in output is expected to be much smaller than the November report forecast.

On Thursday, the Bank of England influenced its assessment of the economy, suggesting that the forecast for a downturn is likely to be shorter and softer than the one released in November 2022.