The European Central Bank decided to raise its key interest rate by an unprecedented 75 basis points on Thursday and signaled further hikes, prioritizing efforts to fight inflation even as the bloc's economy heads into a possible recession.
With inflation at a half-century high and approaching double digits, policymakers worry that rapid price growth could take root, erode the value of household savings and trigger a wage-price spiral.
Following the July rate hike, the ECB raised its deposit rate to 0.75% from zero and raised its main refinancing rate to 1.25%, their highest level since 2011, with further moves expected in October and December.
ECB President Christine Lagarde stated at a press conference that there was unanimous agreement among policymakers on the need for a 75 basis point hike as a measure to bring inflation to the medium-term target of 2%.
At the same time the ECB raised its inflation forecast again, raising the 2023 forecast to 5.5% from 3.5% and putting the 2024 rate at 2.3%, above the 2% target.
The market was a bit surprised, however, most investors had expected an increase of between 50 and 75 basis points. With the ECB's statement clearly saying more rate hikes will be needed, the market continues to expect another 50 basis points at the ECB's October meeting.
The euro has been hovering around parity against the dollar for several weeks, not far from a two-decade low earlier this month. Recently the Euro currency has decreased by 0.14% to 0.9985 against the US dollar.
