ECB raises interest rates by 25 basis points

Investing.com -- The European Central Bank raised interest rates by 25 basis points as expected on Thursday, marking a slowdown from a recent string of more aggressive 50-point hikes.

In a statement, the ECB's Governing Council warned that the outlook for inflation continues to be "too high for too long," adding that underlying price pressures remain uncertain.

Policymakers also refrained from committing specifically to a further increase at the ECB's next meeting in June, saying only that any future rate movements will be based on the impact of upcoming economic and financial expectations for inflation.

"The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction," the ECB said.

The interest rate for the ECB's main refinancing operations will rise to 3.75%, while the deposit facility rate will climb to 3.25%, and the marginal lending facility rate will move up to 4.00%. The ECB also said it will continue to reduce its balance sheet by its current rate of €15 billion (€1 = $1.1023) per month until the end of June.

Leading up to the decision, inflation data out of the euro zone helped to somewhat bolster the case for a more dovish approach from the ECB, which has made curbing price growth a top priority. Core prices - a key gauge of inflation for the central bank which strips out volatile items like energy and food - inched lower in April to 5.6%.

However, that reading remained well above the ECB's stated 2% medium-term target. At the same time, headline inflation also edged higher for the first time in six months to 7%.

Meanwhile, an ECB survey of lending data for March showed that banks were making it more difficult for borrowers to get their hands on credit.

"The ECB has entered the final stage of its rate hike cycle," analysts at ING said in a note. "Although recent data has confirmed that underlying inflationary pressure is stickier than expected, weak credit growth and the latest results of the Bank Lending Survey have indicated that the rate hikes so far are leaving clear marks on the economy."

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