The European Central Bank has increased interest rates by 25 basis points to an all-time high in a bid to tame inflation, but hinted the monetary policy tightening cycle was close to an end.
Deutsche Bank chief European economist, Mark Wall, said: "In the end, the ECB decided to hike again. A lingering pause is being signalled, but it’s a low conviction pause. The ECB has retained the option to hike further if necessary. There is no declaration of victory on inflation.”
"The rate increase today reflects the Governing Council's assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission," the ECB said in its policy statement.
It added that, based on its current assessment, it believes interest rates have reached levels that, when maintained for a "sufficiently long duration", will make a "substantial contribution to the timely return of inflation to the target".
Thursday's decision by the ECB Governing Council took the interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility to 4.50%, 4.75% and 4.00%, respectively.
It means the Frankfurt-based central bank has hiked its policy rates by a cumulative 450 basis points during the current tightening cycle.
The September ECB staff macroeconomic projections for the euro area now see average inflation at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025.
This represents an upward revision for 2023 and 2024 and a downward revision for 2025 which had predicated average inflation at 5.4%, 3.0%, and 2.2%, respectively.