European Central Bank hikes rates to record level, hints at possible peak

The European Central Bank on Thursday announced a 10th consecutive hike in its main interest rate, as the fight against inflation took precedence over a weakening economy.

Rate rises have now hauled the central bank’s main deposit facility from -0.5% in June 2022 to a record 4%. A key reason for the hike Thursday appeared to be upward revisions in newly published staff macroeconomic projections for the euro area, which see inflation averaging at 5.6% this year from a prior forecast of 5.4%, and 3.2% next year from a previous forecast of 3%.

However, it nudged its closely watched medium-term forecast lower, from 2.2% to 2.1%.

In a market-moving statement, it also indicated that further hikes may be off the table for now.

“Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target,” it said.

“The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.”

The euro fell sharply on the announcement and was down 0.5% against the U.S. dollar at $1.0686 at 3 p.m. Frankfurt, Germany, time, trading at a three-month low.

European stocks rallied following cautious trading through the morning, meanwhile, with the benchmark Stoxx 600 index up by 1.1%.

The ECB move on Thursday also takes the interest rates on its main refinancing operations and marginal lending facility 25 basis points higher, to 4.5% and 4.75%, respectively.

Staff also lowered economic growth projections for the euro area from 0.9% to 0.7% expansion in 2023, from 1.5% to 1% in 2024,…