ECB Tempers Rate Hikes, Vows Fight vs Inflation

The European Central Bank (ECB) eased the pace of its interest rate hikes on Thursday but stressed significant tightening remained ahead and laid out plans to drain cash from the financial system as part of a dogged fight against runaway inflation, Francesco Canepa and Balazs Koranyi reported for Reuters.

Photo Insert: In a move shadowing similar steps this week by the Federal Reserve and Bank of England, it raised the rate it pays on bank deposits by 50 basis points to 2%, moving further away from a decade of ultra-easy policy.

After being wrong-footed by sudden price rises, the ECB has been raising rates at an unprecedented pace. Inflation has soared since economies reopened after the COVID-19 pandemic, driven by supply bottlenecks and then surging energy costs following Russia's invasion of Ukraine.

In a move shadowing similar steps this week by the Federal Reserve and Bank of England, it raised the rate it pays on bank deposits by 50 basis points to 2%, moving further away from a decade of ultra-easy policy.

That decision, which was expected, marked a slowdown in the pace of tightening from 75-basis-point hikes at each of the ECB's two previous meetings, as price pressures show some signs of peaking and a recession looms.

But like the BoE and the Fed, the ECB flagged even higher borrowing costs ahead to persuade investors it is still serious about fighting inflation, which according to its new forecasts could stay above the ECB's 2% target through 2025.

"We judge that interest rates will still have to rise significantly and at a steady pace," ECB President Christine Lagarde told a news conference, saying further 50-basis-point rises should be expected for "a considerable length of time."

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