The ECB ordered a quarter point rise in all three of its key benchmark rates as its Governing council said it was “determined to ensure that inflation returns to its 2% medium-term target in a timely manner.”
The deposit rate rate was increased for a 10th consecutive meeting to an all time high of 4%.
It will increase the pressure on the Bank of England to order another hike in UK rates when its Monetary Policy Committee meets next week. The MPC is expected to hike UK rates by a quarter point to 5.5%.
The decision came after ECB staff revised forecasts for inflation upwards for 2023 and 2024. Inflation in the Euro area is now expected to average 5.6% in 2023, up from 5.4%, and 3.2% in 2024, up from 3%, However the projection for 2025 has been revised down slightly to 2.1%.
ECB economists now expect the euro area economy to grow by 0.7% in 2023, 1.0% in 2024 and 1.5% in 2025.
Deutsche Bank analysts said the latest hike meant the last 15 months has been the most aggressive cycle of interest rate rises in Europe since Bundesbank records began in 1949.
In its statement the ECB’s Governing Council said it considers that “the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target. The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.”