The head of the European Central Bank said Monday that interest rates will stay high enough to restrict business activity for "as long as necessary" to beat back inflation because upward pressure on prices "remains strong" in the 20 countries that use the euro currency.
The ECB last week raised its benchmark deposit rate to an all-time high of four per cent after a record pace of increases from minus 0.5 per cent in July 2022. Inflation broke out as the global economy rebounded from the COVID-19 pandemic, leading to supply chain backups, and then Russia invaded Ukraine, sending energy and food prices soaring.
Higher rates are central banks' chief weapon against excessive inflation. They influence the cost of credit throughout the economy, making it more expensive to borrow for things like home purchases or building new business facilities. That reduces demand for goods and, in turn, inflation but also risks restraining economic growth.
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