ECB hikes rate, with pledge of 'significant' increases to come in inflation battle

Latest increase means households paying €415 more a month, or almost €5,000 a year, since ECB started hiking rates in July

ECB president Christine Lagarde said it is set on a path of significant rate increases.

European Central Bank president Christine Lagarde talked tough about fighting inflation after announcing a rate increase of half a point and kept markets guessing by pledging there were further significant rate hikes to come.

The rate increase was the fourth since the central bank started raising rates in July in its battle to get soaring inflation, currently running at around 10%, back to its medium target rate of 2%, and the increase of half a point, or 50 basis points, was widely expected.

However, Ms Lagarde told reporters in Frankfurt that the ECB was set on the path of significant rate increases. "We are in this long game," she said.

We decided to raise interest rates today and expect to raise them significantly further because inflation remains far too high and is expected to remain above our target for too long.           

The comments are closely followed by the markets, which are trying to work out when the ECB will stop raising interest rates.  

Ms Lagarde said that the ECB sees eurozone inflation at 8.4% this year, at 6.3% in 2023, and falling to 3.4% and 2.3% respectively in 2024 and 2025. 

However, core inflation, which excludes energy and food, is seen as remaining at elevated levels. 

She said the eurozone economy may contract this quarter and in the next quarter, but she had better news on the depth of any such recession, with the ECB projecting a "relatively short-lived and shallow" downturn. 

The eurozone economy is expected to grow by 3.4% this year, by 0.5% in 2023, and then expand by 1.9% and 1.8% respectively in 2024 and 2025, Ms Lagarde said. 

On the positive side, employment rose in the third quarter, however as the economy weakens, unemployment could rise in the coming quarters, she said.  

Senior mortgage broker Michael Dowling said that on the face of it, the remarks by Ms Lagarde were "worrying" but he noted that the markets were still expecting rates to rise by a further half point in the early part of next year.     

He said that the 300,000 Irish tracker mortgage borrowers would again be immediately affected by the latest rate decision.  

He said a borrower on a €300,00 tracker mortgage over 30 years would pay an extra €83 a month. However, the latest increase means the household is paying €415 more a month, or almost €5,000 a year,  since the ECB started hiking rates in July.