ECB Raises Rates By 25 Basis Points To 22-Year High; Signals More To Come

The European Central Bank raised interest rates for the eighth successive time as expected on Thursday and signalled further policy tightening, as it battles high inflation, reports Reuters.

According to Reuters, The ECB has now increased borrowing costs by a combined 4 percentage points in a year, its fastest pace on record, but a peak is now clearly in sight and the debate is slowly shifting to how long rates will need to be kept at current levels.

"The Governing Council's future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target," the ECB said after lifting the deposit rate by 25 basis points to a 22-year high of 3.5%.

Policymakers need to reconcile opposing forces.

At 6.1%, inflation is already well below double-digit readings from last autumn and a recession, along with sharply lower commodity prices, will cool price growth quickly over the rest of the year. According to Reuters.

But the labour market remains tight, nominal wage growth is quick and underlying price pressures, particularly for services, appear to be stubbornly high.

This is why a long list of policymakers have already put a July rate hike on the table, with nearly all also saying they were keeping an open mind about September.

"Staff have revised up their projections for inflation excluding energy and food, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation," the ECB added.

According to Reuters, Complicating the decision, the U.S. Federal Reserve paused its rate hikes on Wednesday after 10 straight increases, signalling that a global tightening cycle could soon come to an end, even if a little more tightening is still possible.