Breaking: ECB hikes interest rates as inflation battle continues

The European Central Bank (ECB) delivered another interest rate hike on Thursday as it continued with its battle against inflation. In a statement, the Christine Lagarde-led bank, decided to hike the main interest rate by 0.25% to 4.0%, the highest level in over a decade.

The ECB also decided to boost the deposit facility rate by 0.25% to 3.50% and the marginal facility rate to 4.25%. It has boosted rates in the past eight straight meetings, for the first time since 2006. The rate hike was in line with what most analysts were expecting, as we wrote here.

By hiking interest rates, the ECB diverged from the Federal Reserve, which decided to leave interest rates unchanged on Wednesday. It had previously increased rates in ten consecutive meetings.

The ECB rate hike happened in a time when the bloc’s inflation is falling modestly. Data published this week showed that Spain’s inflation dropped to 3.1%, meaning that it is approaching the ECB’s target of 2.0%. In Germany, inflation dropped to 6.1% even as the country sank into a technical recession.

Data by Eurostat showed that the Euro area inflation dropped to about 6%. Still, inflation remains above the 2% target set by the European Central Bank. Therefore, the ECB hinted that it will continue hiking even as several countries in the region move into a recession. 

Analysts believe that the ECB will hike rates at least two more times this year and then hit a strategic pause. The pause will help the bank assess the impact of the recent rate increases. The EUR/USD pair drifted upwards slightly after the ECB decision. It was trading at 1.0820, where it has been in the past few days. The Euro bund yield dropped slightly to 0.38% while the German bund yield jumped to 2.62%. European indices like the German DAX and French CAC 40 index are hovering near their all-time highs.