European Central Bank raises interest rates, slows pace in inflation fight

The European Central Bank has slowed the pace of its interest rate increases, stepping back like the US Federal Reserve from a string of jumbo hikes aimed at snuffing out inflation.

The ECB's quarter-point hike on Thursday 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 said it still has further to go even as economic growth slows to a crawl and US bank instability stirs new fears of financial turmoil.

“Based on the information we have today, we have more ground to cover, and we are not pausing,” ECB President Christine Lagarde said at a news conference.

The bank said inflation “has declined over recent months, but underlying price pressures remain strong.”

It says its streak of six hikes of half- or three-quarters of a point are being “transmitted forcefully” by making loans harder to get but how that affects the rest of the economy isn't yet clear.

The ECB's lending survey this week showed that banks are getting stricter about giving loans and that consumers and companies are asking for less credit and fewer mortgages.

Making it more expensive to borrow can cool off spending, easing pressure on prices but potentially weighing on economic growth.

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 is high at 7 percent and has been fuelled by Russia’s attacks on 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.

The spiking cost for Europeans to feed their families has become the new pain point. Food prices jumped 13.6 percent in April from a year earlier, following a 15.5 percent annual increase the month before.

So-called core inflation, which excludes volatile fuel and food prices, fell only slightly in April, to 5.6 percent from a record 5.7 percent the month before.

It’s considered a clearer picture of whether price pressures are building up in the economy from demand for goods and higher wages.