Central banks throughout Europe boosted interest rates on Thursday, some by surprising amounts, and hinted at much higher borrowing costs in the future in order to combat skyrocketing inflation, which is eroding savings and pinching corporate earnings.
Inflation has spread throughout the continent, fueled by surging oil costs in the aftermath of Russia's invasion of Ukraine. It now affects everything from food to services, with double digit rates in some areas.
In some regions, such levels haven't been seen since the aftermath of the 1970s oil crisis.
The Swiss National Bank and the National Bank of Hungary both surprised markets with large rate hikes, only hours after the Federal Reserve of the United States raised rates by the greatest in almost three decades.
Meanwhile, the Bank of England raised borrowing costs by a quarter percent, as predicted by markets. find out more
The actions came barely a day after the European Central Bank decided in an emergency meeting to keep borrowing prices in the EU's southern regions under control so that rate hikes in July and September could go forward. find out more
"We are in a new era for central banks," said George Lagarias, Chief Economist at Mazars Wealth Management, "where cutting inflation is their main goal, even at the price of financial stability and GDP."
The day's greatest changes came from Switzerland, where the SNB hiked its policy rate from -0.75 percent to -0.25 percent, a move that no analyst surveyed by Reuters expected.
The SNB's first rate rise since 2007 is unlikely to be the last, and some analysts believe the bank will exit negative territory this year.
"The latest inflation projection indicates that more policy rate rises may be required in the near future," SNB Chairman Thomas Jordan said at a press conference.
The Swiss franc gained about 1.8 percent versus the euro as a result of the move, heading for its greatest daily gain since the SNB unhooked the franc from its euro peg in January 2015.
TIGHTROPE
The Bank of England, in London, was more cautious, but indicated it was prepared to act "forcefully" to avert the dangers posed by an inflation rate approaching 11%. find out more
The Bank of England hiked borrowing prices for the seventh time since December, and the British benchmark rate is currently at its highest level since January 2009.
Three of the nine rate-setters, on the other hand, voted for a 50-basis-point hike, implying that the bank will be under pressure to maintain raising rates even if the economy slows dramatically.
"Central bankers are walking a tightrope, with the major fear being that hiking rates too rapidly might tip economies into recession," said Maike Currie, Fidelity International's Investment Director for Personal Investing.
"Tightening monetary policy is a crude weapon for dealing with a perilous situation."
Despite the boost, sterling sank quickly, as some market participants had expected a larger move following the Fed's 75-basis-point hike the night before. However, a weaker currency means more import inflation and more pressure to boost interest rates. find out more
The pound was last trading at $1.2085 versus the dollar, down 0.75% on the day.
Meanwhile, in Budapest, the Hungarian central bank hiked its one-week deposit rate by 50 basis points to 7.25 percent in a weekly tender, aiming to slow the country's steadily growing inflation, which is already in double digits.
The bank's deputy governor, Barnabas Virag, said the move was far from the last and that the bank will keep raising rates in "predictable and decisive" increments until it sees evidence of inflation peaking, which he expects to happen in the autumn.
The increase also comes as the country's currency has lost about 7% of its value this year, driving up inflation through increased import prices.