European Central Bank Raises Key Interest Rate to Record High

The European Central Bank raised interest rates by a quarter percentage point to a record high but signaled that eurozone borrowing costs may have peaked, sending the euro tumbling, the Wall Street Journal reported. In a split decision, ECB officials raised the bank’s deposit rate to 4%, the 10th increase in a row and a vertiginous rise from below zero last year. At a news conference, ECB President Christine Lagarde signaled that Thursday’s rate increase might be the last, although she didn’t rule out further hikes if economic data disappoint. ECB officials judge that rates “have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution” to reducing inflation to their 2% target, Lagarde said, repeating language used in the bank’s policy statement. The comment prompted investors to downgrade their expectations for future ECB rates, sending the euro down by almost a cent against the dollar to below $1.07, its lowest level since March. Bond yields slid, with yields on the benchmark 10-year government bonds of Germany, France and Italy down between 0.05 and 0.10 percentage point. European stocks rallied, with the benchmark Stoxx Europe 600 index rising more than 1%. Read more. (Subscription required.)