The European Central Bank raised interest rates for the ninth time in a row on Thursday and left open the possibility of further tightening amid firm inflation and the growing risk of a recession.
The ECB has now raised borrowing costs by 425 basis points since July last year, worried that excessive price growth could be sustained through wage increases as the job market remains very tight.
With a 25 basis point move on Thursday, the ECB's deposit rate stood at 3.75%, the highest level since a similar level was set in 2000. The main funding rate was set at 4.25%.
"Forthcoming decisions will ensure that the ECB's interest rate will be set at a fairly restrictive level for as long as necessary to achieve the current medium-term target inflation return of 2%," the ECB said in a statement.
Even so, the ECB no longer mentions rates needing to be "brought down" to levels that reduce inflation quickly enough, a subtle change that could be seen as a signal that further hikes are not a certainty.
This will leave investors speculating whether another interest rate hike is in reach or whether this July marks the end of the ECB's fastest-ever tightening wave.
However, it is increasingly clear that the end of rate hikes is drawing near, with political leaders debating whether or not one more small step is needed before rates are held.
"The policymakers will continue to follow a data-based approach to determine the appropriate level and duration of sanctions," the ECB added.
The ECB's problem is that inflation is falling too slowly and it may take until 2025 to return to 2%, as the surge in prices initially driven by energy has spread to the wider economy through large profits and affected service costs.
Although overall inflation is now only half of its peak in October, price growth, which is more difficult to control, is still near historical highs and may have picked up this month.
The labor market is also extremely tight, with unemployment at historic lows increasing the risk that wages will rise quickly in the coming years.
That is why many investors and analysts expect the ECB to hold off on raising rates in September and stop only if autumn wages data provide relief.
