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The European Central Bank (ECB) has started taking steps to contain inflation that has reached record levels. Under this, the bank has increased the policy interest rate by 0.75 percent on Thursday, the highest ever. In the meeting of the Governing Council of the ECB, which acts as the central bank for the 19 member countries of the European Union, a major decision was taken to increase the interest rate by 0.75 percent.
Unexpected step taken to give relief to people from inflation
This decision is significant in the sense that the ECB has generally been changing the policy interest rate only by 0.25 per cent. The bank had never raised a lump sum of 0.75 per cent since its formation in 1999. The purpose of this steep hike in interest rates is to make it more expensive for consumers, businesses and governments to borrow, so as to reduce spending and investment, thereby cutting the prices of consumer goods and providing relief to people from inflation.
Inflation hits a record 9.1 percent in the month of August
Analysts say that this tough move by the ECB can also be seen as restoring the credibility of the central bank. Questions were also raised on the ECB not taking any concrete steps to control the ever-increasing inflation. Inflation in EU member states hit a record 9.1 per cent in August and is expected to hit double digits in the coming months. The war between Ukraine and Russia has contributed greatly to this inflation increase. The reduction in the supply of cheap natural gas from Russia has caused gas prices in European countries to rise up to 10 times.
Russia is deliberately cutting gas supplies to create pressure
European officials say Russia is deliberately cutting gas supplies to put pressure on it. At the same time, Russia has also threatened to completely stop gas supply from this week, blaming technical problems for this. Russia has said that it will cut off supplies to Europe if Western countries set price limits on its natural gas and oil. Berenberg Bank Chief Economist Holger Schmeiding said the ECB wants to combat inflation and appears to be taking steps in this direction.