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ECB raises rates by unprecedented 75 basis points

The European Central Bank raised interest rates by an unprecedented 75 basis points on Thursday to curb runaway inflation, even as a recession becomes increasingly likely as the bloc has lost access to vital Russian natural gas.

The ECB raised its deposit rate from zero to 0.75% and raised the main refinancing rate to 1.25%, the highest level since 2011, as inflation broadens and risk loomed.

“In the coming several meetings, the Governing Council expects to further raise interest rates to dampen demand and guard against the risk of a continued upward shift in inflation expectations,” the ECB said in a statement.

The move comes after weeks of scrutiny by policymakers, with an apparent majority calling for a 75 basis point hike and a few policy doves trying to lower expectations.

Markets, however, sided with the conservatives, counting an 80% chance of a 75 basis point move, even as economists polled by Reuters were more evenly distributed, with only a small majority expecting the larger move.

The big increase comes as the ECB has raised its own inflation forecasts and price growth continues to be well above the 2% target throughout the projection horizon.

“ECB staff have significantly revised their inflation forecasts and inflation is now projected to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024,” the ECB added.

Conservatives feared that anything but too much of a step would be a signal that the ECB was not taking its inflation-fighting mandate seriously. This threatened to increase the already high inflation expectations in the long term, suggesting a loss of confidence in the ECB.

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A timid move would also have weakened the euro and pushed up inflation through more expensive energy imports.

By accelerating rate hikes, the ECB can also get most of the work done before the recession kicks in.

Attention now turns to the press conference of ECB President Christine Lagarde at 1245 GMT.

This story was published from a news agency feed with no text changes.

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