ECB hikes rates by 25 basis points but signals end of tightening

(Sharecast News) - The European Central Bank lifted interest rates to a record high on Thursday as it looks to tackle inflation. The ECB increased rates by 25 basis points to 4%, as widely expected. This marked the tenth consecutive rate hike since July last year, but the Bank also signalled that it would be last in the current cycle.

"Inflation continues to decline but is still expected to remain too high for too long," the Bank said in a statement.

"The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. In order to reinforce progress towards its target, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points."

It added: "Based on its current assessment, the Governing Council 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 Bank lifted its forecasts for eurozone inflation in 2023 to 5.6%, and in 2024 to 3.2%. It cut its forecast for 2025 inflation to 2.1% in 2025.

It also revised its expectations for the bloc's economic growth, which is now seen at 0.7% this year, 1% in 2024 and 1.5% the year after that. In June, the ECB had forecast growth of 0.9% this year, 1.5% in 2024 and 1.6% in 2025.

Carsten Brzeski, global head of macro at ING, said: "The ECB's communication is clear: today was the last hike in the current cycle.

"Looking ahead, a further weakening of the economy and more traction in a disinflationary trend will make it very hard to find arguments for yet another rate hike before the end of the year."