The European Central Bank (ECB) has raised its key interest rates by 50 basis points (bps) and explicitly committed to further hikes to tame rampant inflation in the eurozone.
The interest rates on the main refinancing operations, the marginal lending facility and the deposit facility will be increased to 2.5 per cent, 2.75 per cent and 2 per cent, respectively, with effect from December 21, Xinhua news agency quoted the bank as saying in a statement.
The inflation outlook, which has been revised substantially higher, has been the main reason behind the ECB’s move.
Interest rates would have to “rise significantly at a steady pace”, the bank said.
After the revision, the Eurosystem staff forecast that inflation in the eurozone would reach 8.4 per cent in 2022, 6.3 per cent in 2023, 3.4 per cent in 2024 and 2.3 per cent in 2025.
Inflation in the eurozone dropped slightly to 10 per cent in November.
Price pressures remain strong across sectors as energy costs stay at high levels, the bank said.
Justifying its decisions, the ECB said that raising rates would reduce inflation by dampening demand over time and guard against the risk of a persistent upward shift in inflation expectations.