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European Central Bank Raises Rates Again, Citing Persistent Inflation

The European Central Bank raised interest rates for a ninth consecutive time on Thursday in its mission to rein in inflation in the region’s economy.

Policymakers raised rates for the 20 countries that use the euro currency by a quarter percentage point, pushing the deposit rate up to 3.75 percent, the highest since late 2000.

“Inflation continues to decline but is still expected to remain too high for too long,” the central bank said in a statement on Thursday.

The pace of consumer price increases has slowed in recent months but policymakers have warned that they still face a difficult challenge returning inflation to the bank’s 2 percent target.

Lower wholesale energy prices pulled down the headline rate of inflation to 5.5 percent in June, but there is still a lingering impact from higher energy bills that is supporting domestic price pressures, such as relatively strong wage growth. Core inflation in the eurozone, which strips out food and energy prices, rose to 5.4 percent last month. And there are signs that inflation will be more persistent than previously thought, policymakers have said.

“While some measures show signs of easing, underlying inflation remains high overall,” the bank said.

The European Central Bank’s action came a day after the Federal Reserve raised interest rates a quarter-point, after holding them steady at the previous meeting.

Exactly a year ago, the European Central Bank’s first interest rate increase in more than a decade went into force. Since then, policymakers have embarked on the bank’s most aggressive policy tightening cycle. Interest rates have been lifted to levels intended to arrest inflationary pressure, helping to cool the economy.

But monetary policy works slowly, and the impact of past rate increases is only just beginning to be felt in the economy. This creates a challenge for policymakers who do not want to overdo their inflation-fighting efforts and cause unnecessary economic pain.

Recently, Christine Lagarde, the president of the bank, said that persistent inflation meant interest rates would need to stay higher for longer, suggesting that the focus had turned to how long interest rates would remain at restrictive levels, not just how high they go.

Future policy decisions will ensure interest rates are set “at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation” to the bank’s target, according to the bank’s statement on Thursday. It will use economic and financial data to determine the “appropriate level and duration of restriction.”

On Wednesday, Jerome H. Powell, the Fed chair, suggested that even though there had been progress on sustainably bringing inflation down, interest rates had not been at restrictive levels in the United States long enough and officials were prepared to raise rates further if needed.

The European Central Bank emphasized on Thursday that past rate increases were having an impact on the economy. Earlier this week, data showed that demand for loans decreased and lenders tightened credit standards for businesses and households in the second quarter. Separate data showed an index of economic activity in the eurozone dropped to its lowest level in eight months in July, as the manufacturing industry contracted further and the services sector slowed down.

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Mohammad SHiblu

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