ECB hikes interest rate by 0.25 percentage points as inflation spooks Eurozone

The European Central Bank (ECB) on Thursday increased its interest rate by0.25 percentage point, bringing it to 3.75 percent. This is the highest interest rate level since 2000-01.The latest hike, the ninth consecutive,reflectedthat taminginflation continues to be the top priority for the ECB.

In a statement, the ECB expressed its determination to bringinflation back to its medium-term target of two percent in a timely manner. "Inflation continues to decline but is still expected to remain too high for too long," the ECB added.

Following the decision, the euro fell 0.3 percent versus the US dollar, trading at $1.105. The Stoxx 600 increased by 1.2 percent, while government bond rates fell. The reactions indicate that market participants are likely to expect future rate rises in the eurozone.

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In the last few months, inflation has shown some signs of cooling down in the Eurozone. In June, inflation dropped to 5.5 percent, down from the 6.1 percent recorded in May. While this decline is a positive development, it is essential to note that it remains significantly higher than the ECB's target of two percent.

Furthermore, an recent ECB survey revealed that business loans in the Eurozone fell to their lowest level between the middle of June and early July. Data on Eurozone economic activity released earlier this week showed a decline in the region's two largest economies, Germany and France. The numbers have fueled speculation that the eurozone would enter a recession this year.

However, in some relief for the Euro zone, the ECB did raise the possibility of a rate pause in September. Speaking to media personnel after the announcement, ECB President Christine Lagarde said, "What I can assure you of is that we are not going to cut. That is a definite no. But on the other side, (there) could be a hike, (there) could be a pause."

Now all eyes are on the latest inflation data, which will come out next week. This will set the course for the ECB's monetary policy for the rest of the year.

(With inputs from agencies)

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