Frankfurt: The European Central Bank slowed the pace of its interest rate increases on Thursday, stepping back like the US Federal Reserve from a string of jumbo hikes aimed at snuffing out inflation.
The ECB’s quarter-point hike follows evidence that its efforts are working by making mortgages and business loans harder to get.
The decision comes a day after the Fed approved a quarter-point increase and hinted that it may have reached the end of its hiking cycle.
But the central bank for the 20 countries that use the euro currency started later and may still have further to go even as economic growth slows to a crawl and US bank instability stirs new fears of financial turmoil.
The ECB said in a statement that inflation “has declined over recent months but underlying price pressures remain strong.”
The ECB eased the pace after its lending survey showed that banks are getting stricter about giving loans and that consumers and companies are asking for less credit and fewer mortgages.
That’s a sign that its streak of six hikes of either half- or three-quarters of a point are taking effect.
Making it more expensive to borrow can cool off spending, easing pressure on prices but potentially weighing on economic growth.
Demand for housing loans plummeted in the first three months of the year, following the sharpest decline since statistics started in 2003 at the end of 2022.
Market observers are waiting for ECB President Christine Lagarde’s news conference for clues about the bank’s future steps, especially with inflation still high at 7 per cent.
It has been fuelled by Russia’s invasion of Ukraine, which drove up oil prices and led Moscow to cut off most natural gas to Europe. Energy costs have since fallen, but the surge is still feeding through to higher prices for goods, services and food.
Food prices jumped 13.6 per cent in April from a year earlier, following a 15.5 per cent annual increase the month before.