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The European Central Bank raised its key interest rates by an unprecedented 75 basis points on Thursday and promised further hikes, prioritising the fight against inflation even as the block is likely heading towards a winter recession and gas rationing.
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President Christine Lagarde warned that further hikes are coming at future meetings, as inflation remains far too high and is likely to stay above target for an extended period. The ECB also slashed its growth forecasts, and lited its inflation outlook, following the surge in gas prices as Russia has cut supplies to Europe.
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Inflation across the 19 countries of the eurozone reached a record 9.1% last month led by a surge in energy, and in particular gas, prices. The Frankfurt institution, which tries to keep inflation at around 2%, has significantly revised up its forecast and now expects inflation to average 8.1% this year before starting a slow decrease and settle at 5.5% in 2023 and 2.3% in 2024.
Why it matters
Europe has been trying to wean itself off Russia's fossil fuel exports since the invasion in February. Moscow has responded by slashing flows of natural gas to Germany and other EU countries — sending prices soaring and forcing governments to spend hundreds of billions subsidizing bills for businesses and households.