Frankfurt, Germany—The European Central Bank announced the largest rate hike in its history Thursday and said there were more to come as it scrambles to pull inflation down from record heights.
Policymakers lifted the ECB’s key rates by 75 basis points, a leap matched only by a technical move made in 1999 shortly after the central bank’s founding.
Eurozone inflation hit a record 9.1 percent in August, as steep increases in the price of energy in the wake of the Russian invasion of Ukraine heaped pressure on households and businesses.
Consumer prices were likely to continue to rise quickly “for an extended period,” the ECB said in a statement, with its latest forecasts expecting inflation to average 8.1 percent in 2022.
The “major step” quickened the ECB’s move away from a “highly accommodative level of policy rates” to one that would bring inflation back to its two-percent target, it said.
The Frankfurt-based institution was on a “journey” to raise interest rates and tame inflation, ECB President Christine Lagarde said at a press conference.
The ECB already exceeded expectations at its July meeting with a 50-basis-point increase in interest rates, its first hike in more than a decade.
Thursday’s drastic increase was not the end of the ECB’s work, however, with the central bank saying it “expects to raise interest rates further” at its next meetings.
The ECB had “given up on inflation targeting and forecasting and has joined the group of central banks focusing on bringing down actual inflation,” said Carsten Brzeski, head of macro at the ING bank
Ahead of the meeting, a growing chorus of voices called for the central bank to show greater “determination” in the face of inflation.
Thursday’s gathering marked the beginning of a new “meeting-by-meeting” approach for the ECB.
In July, policymakers scrapped so-called forward guidance, which had limited the ECB’s room for maneuver, giving them a free hand for more aggressive hikes.
The ECB is playing catch-up with central banks in the United States and Britain, which started raising rates harder and faster in response to inflation.
The 75-basis-point increase matches the largest step taken by the Federal Reserve in its current hiking cycle.
The bumper hike was not “the norm,” Lagarde said, but the governing council had been “unanimous” in their support for the move.
The ECB was still “so far away” from interest rates that would bring inflation back to its two-percent target, she said, with more hikes to come.
“We want all economic actors to understand that the ECB is serious about returning inflation back to two percent,” Lagarde said.