The European Central Bank doubled its key interest rate to the highest level in more than a decade and signaled it's making progress in its battle with record inflation, just as the likelihood of a recession mounts.
Officials in Frankfurt delivered a second straight three-quarter-point hike on Thursday — as economists expected — while dropping a prior reference to increases continuing for "several meetings," saying simply they expect borrowing costs to be raised "further."
Citing "substantial progress in withdrawing monetary policy accommodation," the ECB brought the deposit rate, which was below zero as recently as July, to 1.5%. "Inflation remains far too high and will stay above the target for an extended period," it said in a statement.
In plowing on with increases even as energy-market turmoil batters the 19-nation euro-zone economy, the ECB reaffirmed its commitment to wrest back control over prices that are surging at five times the 2% target.
"Economic activity in the euro area is likely to have slowed significantly in the third quarter," President Christine Lagarde told a news conference, describing a "higher likelihood of a recession."
Asked about the change in wording in the ECB's rate outlook, Ms. Lagarde said the exact path will be determined each time officials convene.
"It might well be several meetings," she said. "We still have ground to cover."
Thursday's move matches the recent pace of the Federal Reserve, whose assault on inflation began earlier, and has boosted the dollar at the euro's expense. Canada, however, wrong-footed investors on Wednesday by unexpectedly slowing the speed of its monetary tightening as its economy flirts with a downturn.
Money markets pared tightening wagers by as much as 20 basis points, pricing the deposit rate to peak below 2.75% next year. That compares with a peak above 3.25% as recently as last week. The euro extended a slide.
Officials also toughened the terms on more than €2 trillion ($2 trillion) of ultra-cheap pandemic-era loans to banks known as TLTROs. The agreements had become problematic after the recent rapid rate hikes allowed lenders to park TLTRO cash in ECB accounts and earn a risk-free income.
Changing the conditions retroactively carries legal risks and could make banks wary of similar offers in the future, undermining their effectiveness. Deutsche Bank Chief Financial Officer James von Moltke said Wednesday he'd be "disappointed" if the terms were adjusted as banks signed up "faithfully" to keep credit flowing.
Officials also cut the interest they pay on the reserves banks are required to hold at the ECB to match the deposit rate.
