ECB leaves rates untouched despite record high inflation

The European Central Bank (ECB) yesterday left interest rates unchanged despite inflation on the Continent running at its highest level ever.

The ECB’s decision to leave rates in negative territory was taken despite president, Christine Lagarge, warning the cost of living in the bloc could rise even further.

Europe’s central bank’s inertia runs against the sharp policy shifts from the US Federal Reserve and the Bank of England.

Yesterday, the Bank lifted rates at successive meetings for the first time since 2004, taking them to 0.5 per cent as it moves from supporting the British economy through the Covid-19 crisis to tackling historically high inflation.

Fed Chair, Jerome Powell, last month told financial markets to buckle up for a sharp rate hike cycle this year, likely beginning in March.

“Inflation is likely to remain elevated for longer than previously expected,” Lagarde said.

“The situation has indeed changed,” she added.

The ECB left rates at minus 0.5 per cent despite data released this week revealing prices are 5.1 per cent higher in the Eurozone than they were a year ago, a record rise.

Rates on the Continent have been in negative territory for several years.

Inflation in rich countries has taken off, driven by supply chains buckling under the weight of a sudden uptick in demand as economies emerge from Covid-19 restrictions.

In the UK, the cost of living will top seven per cent in April, according to new forecasts released by the Bank of England. In the US, inflation hit the highest rate since the 1980s in December.