FRANKFURT, Germany (AP) 鈥� The European Central Bank slowed the pace of its interest rate increases Thursday, from a string of jumbo hikes aimed at snuffing out inflation. But the ECB also said it was 鈥渘ot pausing鈥� even as its efforts have worked by making mortgages and business loans harder to get.
The quarter-point hike came a day after the Fed approved the same increase but hinted it may be the last for now. The central bank for the 20 countries that use the euro currency started later and said it has further to go even as and stirs new fears of financial turmoil.
鈥淏ased on the information we have today, we have more ground to cover, and we are not pausing. It鈥檚 extremely clear,鈥� ECB President Christine Lagarde said at a news conference. She later added, 鈥淭his is a journey. We have not arrived yet.鈥�
Lagarde said there's no 鈥渕agic number鈥� but that the bank 鈥渨ill know what that is when we get there.鈥� Inflation has declined for several months, but at of 2% considered best for the economy.
The previous of half- or three-quarters of a point were being 鈥渢ransmitted forcefully" to lending practices, making it harder to borrow, the bank said. But how that is affecting the rest of the economy, namely by bringing down prices, isn't yet clear.
The ECB's lending survey this week showed that banks are getting and that consumers and companies are asking for less credit and fewer mortgages.
While the rate hikes are having an effect, 鈥渋s it a sufficient effect yet? We don鈥檛 know,鈥� Lagarde said.
Holger Schmieding, chief economist at Berenberg bank, foresees two more increases of a quarter-point.
鈥淯nlike the US Fed, the ECB is almost certainly not done yet,鈥� Schmieding said by email. 鈥淗owever, the fact that the ECB ... slowed down the pace of hikes suggests that the peak is not far away.鈥�
Making it more expensive to borrow can cool off spending, easing pressure on prices but potentially . Demand for housing loans in the eurozone plummeted in the first three months of the year, following the sharpest decline since statistics started in 2003 at the end of last year.
Inflation 鈥� which peaked at 10.6% in October 鈥� has been fueled by Russia鈥檚 invasion of Ukraine, which drove up oil prices and led to Europe. , but the surge is still feeding through to higher prices for goods, services and food.
The spiking cost for Europeans to feed their families has become the new pain point because 鈥渢he most vulnerable spend a lot more on food," Lagarde said. 13.6% in April from a year earlier, following a 15.5% annual increase the month before.
Lagarde said employees seeking raises and companies hiking prices to preserve profits were forces that could push up prices.
鈥淲e would hope that through a good social contract, these drivers of inflation do not activate each other in what I have called in other places a tit for tat,鈥� she said.
for wages that keep pace with inflation, with analysts saying average pay rises could hit 5% this year 鈥� driven by eye-catching deals like German public employees鈥� 11% salary increase over two years.
Lagarde, meanwhile, called renewed financial turmoil a risk to economic growth, though appears 鈥� so far 鈥� not to be shaking the stability of Europe鈥檚 banks, the chief source of credit for businesses.
this week and sold it to JPMorgan Chase, the third major bank failure following the collapse of Silicon Valley Bank and Signature Bank in March.
The earlier turmoil enveloped and led to a government-orchestrated , but European financial officials say their banks have minimal direct exposure to the U.S. troubles.
The central bank has pressed ahead with rate hikes despite concerns about their impact on economic growth. The eurozone barely scraped out 0.1% growth in the first three months of the year compared with the previous quarter.
The ECB鈥檚 decision brings its benchmark rate on deposits from banks to 3.25%.
David Mchugh, The Associated Press
