After this tenth hike in a row since July 2022, the Frankfurt institution signaled that its draconian cycle of monetary tightening was coming to an end, but without being able to ensure that the "peak" of rates was reached.

"We cannot say that we have reached the peak," Christine Lagarde told reporters.

While believing that rates have reached levels that will make "a substantial contribution" to the desired decline in inflation, she added that the institution's next decision on the matter will depend on "economic data".

To bring prices down sufficiently, rates will have to be kept at their levels "for a sufficiently long time", the Governing Council warned after its meeting.

The ECB has chosen to stay the course, fourteen months after launching the fastest and broadest rate hike cycle in its history, of 4.50 percentage points to date.

A decision she justifies by saying that "if inflation continues to slow, it should always remain too high for too long".

The ECB on Thursday raised its inflation forecasts for the years 2023 and 2024, due to the impact of energy prices.

The monetary institution now forecasts a price increase of 5.6% in 2023, then 3.2% in 2024 and 2.1% in 2025, approaching its medium-term target of 2.0%.

Don't stop too soon

The ECB faced a dilemma on Thursday, making its decision more uncertain than ever, as economic activity in the euro zone shows real signs of contraction.

The monetary tightening of recent months has led to a surge in borrowing costs for households and businesses, affecting demand and therefore the distribution of credit.

Once confined to the manufacturing sector, the slowdown has gradually spread to the services sector. The PMI hit a 33-month low, with activity contracting at a pace not seen since the fall of 2020 and the first year of the pandemic.

The ECB on Thursday lowered its growth forecasts in the euro zone until 2025. This is expected to reach only 0.7% in 2023, against 0.9% previously expected, then 1.0% in 2024 and 1.5% in 2025.

"We are clearly in a period of slow and sluggish growth," Lagarde said.

This dilemma between inflation and growth has given rise to intense debate among eurozone central bankers in recent weeks.

The tenth rate hike in a row was however decided by "a solid majority" of the Governing Council, even if some members would have "preferred a pause", acknowledged the central banker.

Faced with inflation deemed tenacious, the risk of not doing enough appeared higher than the risk of doing too much, as hammered by the "hawks" who have dominated the debate in the ECB council for more than a year.

The rate increase of 0.25 percentage points decided on Thursday, as in July, brings the deposit rate of bank liquidity at the ECB, which references, at 4.00%, the highest since the creation of the monetary institute in 1999.

Its goal is to continue to curb economic activity so that businesses and businesses refrain from raising prices, and their employees moderate wage demands, which tend to maintain inflation.

"The fear of not fully controlling inflation and the risk of stopping too soon must have been a bigger concern than the growing risk of recession in the euro area," Carsten Brzeski of ING Bank said after the decision.

But he also believes that the ECB announced on Thursday "the final increase" in the monetary tightening cycle.

© 2023 AFP