European Central Bank raises rates by 25 basis points, says inflation set to remain ‘too high for too long’

The European Central Bank on Thursday announced a new rate increase of 25 basis points, bringing its main rate to 3.75%

The latest move completes a full year of consecutive rate hikes in the euro zone, after the ECB embarked on its journey to tackle high inflation last July.

“Inflation continues to decline but is still expected to remain too high for too long,” the ECB said Thursday in a statement.

A headline inflation reading showed the rate coming down to 5.5% in June from 6.1% in May — still far above the ECB’s target of 2%. Fresh inflation data out of the euro zone is due out next week.

While market players had expected the 25 basis point hike, a lot of anticipation remains about the ECB’s post-summer approach. Inflation has eased, and questions linger about whether monetary policy is pushing the region into an economic recession.

An ECB survey showed that corporate loans in the euro zone dropped to their lowest level ever between mid-June and early July.

Euro zone business activity data released earlier this week pointed to declines in the region’s biggest economies, Germany and France. The figures increased the chances of a recession in the euro area this year, according to analysts at ING Germany.

The International Monetary Fund said this week that the euro zone is likely to grow by 0.9% this year, but that factors in a recession in Germany, where the GDP is expected to contract by 0.3%.

This breaking news story is being updated.