Record level, European Central Bank increases interest rates to 4%

The European Central Bank raised interest rates again by 25 percentage points to 4%, the highest level since the inception of the euro currency in 1999.

"Inflation continues to fall, but is still expected to remain very high for a long time. The Governing Council is determined to ensure that inflation returns to its medium-term target of 2% in due course. In order to strengthen the progress towards its objective, the Governing Council decided today to increase the three main interest rates of the ECB by 25 basis points", says the ECB announcement.

The central bank, which has now raised borrowing costs for the 10th time in a row, hinted it may not need to raise rates further, although it said it remained data-dependent.

"The key interest rates of the ECB have reached levels that, maintained for a sufficiently long duration, will make a significant contribution to the timely return of inflation to the target. The Governing Council will continue to follow a data-driven approach to determine the appropriate level and duration of restriction," the decision states.

The eurozone as a whole has avoided recession so far, but Germany, its largest economy, has contracted. It is not only higher interest rates that are weighing down economic activity. Another factor was the fear of a shortage of natural gas after the Russian invasion of Ukraine last year. So is the weakness in China, where Germany's manufacturing industry relies heavily.

At the same time, the inflation rate in the Eurozone stands at 5.3%, still far above the ECB's 2% target. Although it has declined from a peak of 10.6% in October, it is expected to continue at these levels for some time.

The European Commission earlier this week lowered its forecasts for economic expansion and said inflation would continue to average more than 3% in 2024.