Europe’s central bank faces close call on interest rates as threat of recession grows

Caught between stubborn inflation and weakening growth, the European Central Bank faces a close call yesterday on whether to halt its record run of interest rate hikes amid alarming signs that the economy could slide into recession.

The decision comes as the ECB, U.S. Federal Reserve and other major central banks are nearing the end of their swift series of rate hikes aimed at squelching inflation — and hoping the damage to economic growth from higher borrowing costs is not too extensive.

ECB President Christine Lagarde has said the latest rate decision will be made based on available data, a switch from the last nine meetings when rate hikes were signaled ahead of time.

Annual inflation of 5.3% in the 20 countries that use the euro currency is still well above the bank›s target of 2%, robbing consumers of purchasing power and contributing to economic stagnation that has kept growth just above zero this year — supporting arguments for a 10th straight rate increase.

Pushing the other way is the growing awareness that higher borrowing costs are weighing on decisions by consumers and businesses to invest and spend and are becoming a burden on the economy.