ECB raises interest rates for fifth consecutive time

FRANKFURT Reuters - The European Central Bank raised interest rates for the fifth consecutive time on Thursday and signalled another half a percentage point increase for March, pressing ahead with policy tightening even as some global peers are slowing down.

The key rate was raised by the European Central Bank by 3 percentage points in just seven months, in the hope that higher borrowing costs will temper demand and prevent rapid price growth from getting entrenched.

The deposit rate was raised to 2.5% from 2% at its first meeting this year, as promised in December. It did not follow the US Federal Reserve in signalling a slowdown in the pace of policy tightening.

The Governing Council will keep its course in raising interest rates at a steady pace, the European Central Bank said in a statement.

The Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March, and will evaluate the subsequent path of its monetary policy, it added.

In the past few weeks policymakers have been split over the rate outlook, as incoming data was ambiguous and could support the case for faster and slower rate hikes.

Underlying inflation, a key measure of the durability of price growth, remains stuck at multi-decade highs and wage growth, another key component of long-term inflation, is clearly accelerating. The unemployment rate is at an all-time low and the labour market is tight.

Wednesday's signal of a slowdown by the Fed, which started to raise rates earlier, suggests that the window of opportunity may close sooner than expected.

Markets have accepted this hawkish argument so far, especially as conservative policymakers' voices have been in a clear majority for much of the past year.

After Thursday's move, markets were still pricing in a full percentage point rate hike, which would put the deposit rate at its highest in over two decades.

The headline inflation is already 2 percentage points below the peak, while the decline in natural gas prices points to a further drop in inflation, according to policy doves.

Credit growth is poised for its biggest drop since the bloc's debt crisis in 2011, suggesting that rate hikes are slowly working their way through the economy.