FRANKFURT: The European Central Bank on Thursday said eurozone inflation was still too elevated as it hiked interest rates for an eighth consecutive time to a two-decade high, despite a darkening economic outlook.

The ECB increased rates by another 25 basis points, taking the closely-watched deposit rate to 3.50 per cent — its highest level since 2001.

“Inflation has been coming down but is projected to remain too high for too long,” the ECB said in a statement.

Policymakers were “determined to ensure” a return to the bank’s two-percent target, and will keep rates at sufficiently restrictive levels “for as long as necessary”, it added.

The quarter-point hike was widely pencilled in by analysts.

They were instead hoping president Christine Lagarde would use her 1245 GMT Frankfurt press conference to shed light on whether the ECB’s unprecedented campaign of monetary policy tightening was nearing the summit.

In the United States, the Federal Reserve on Wednesday held off from raising interest rates again after 10 straight increases.

But the Fed indicated more hikes were likely before the end of the year as inflation remains double the bank’s target rate.

In the euro region, the ECB has hiked borrowing costs at the fastest rate ever to tame inflation after Russia’s war in Ukraine sent food and energy prices soaring, raising rates by 3.75 percentage points since last July.

Eurozone inflation slowed to 6.1pc in May year-on-year, down from a peak of 10.6pc in October, mainly thanks to rapidly falling energy costs.

The ECB said its inflation-fighting efforts were “gradually having an impact across the economy”, with loan demand slowing sharply in the eurozone as higher borrowing costs take their toll on households and firms.

But inflation remains three times above target and core inflation — which strips out volatile food and energy prices — eased only slightly to 5.3pc, after 5.6pc in April.

Published in Dawn, June 16th, 2023