ECB hikes rates by 50 bps

FRANKFURT - The European Central Bank (ECB) on Thursday raised its key interest rates by 50 basis points (bps) and explicitly committed to further hikes to tame rampant inflation in the eurozone.

The interest rates on the main refinancing operations, the marginal lending facility and the deposit facility will be increased to 2.5 percent, 2.75 percent and 2 percent, respectively, with effect from Dec 21, the bank said in a statement.

The inflation outlook, which has been revised substantially higher, has been the main reason behind the ECB's move.

Interest rates would have to "rise significantly at a steady pace," the bank said.

After the revision, the Eurosystem staff forecast that inflation in the eurozone would reach 8.4 percent in 2022, 6.3 percent in 2023, 3.4 percent in 2024 and 2.3 percent in 2025.

Inflation in the eurozone dropped slightly to 10 percent in November. Price pressures remain strong across sectors as energy costs stay at high levels, the bank said.

Justifying its decisions, the ECB said that raising rates would reduce inflation by dampening demand over time and guard against the risk of a persistent upward shift in inflation expectations.