UPDATE - European Central Bank hikes rates to highest in more than decade

UPDATES WITH REMARKS FROM ECB GOVERNOR; OTHER EDITS; REVISES DECK

By Aysu Bicer and Tuba Sahin

ANKARA (AA) - The European Central Bank on Thursday hiked rates by 75 basis points, its third major increase in a row, bringing borrowing costs to their highest level in more than a decade to tackle record eurozone inflation.

"Inflation remains far too high and will stay above the target for an extended period," said a bank statement.

In September, euro area inflation hit 9.9%, with soaring energy and food prices, supply bottlenecks, and the post-pandemic demand recovery causing price pressures.

"The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 2.00%, 2.25% and 1.50% respectively, with effect from 2 Nov. 2022," it said.

The bank also announced it was changing the terms and conditions of its targeted longer-term refinancing operations, or TLTROs – an instrument that enables European banks with attractive borrowing conditions, formed to incentivize lending to the real economy.

"The Governing Council ... decided to adjust the interest rates applicable to TLTRO III from 23 November 2022 and to offer banks additional voluntary early repayment dates," the ECB said.

"In order to align the remuneration of minimum reserves held by credit institutions with the Eurosystem more closely with money market conditions, the Governing Council decided to set the remuneration of minimum reserves at the ECB’s deposit facility rate," the bank said.

Speaking at a press conference following the meeting, ECB President Christine Lagarde warned that a eurozone recession was looming.

"In the current state of uncertainty, with the probability of recession looming much more on the horizon, a probability that has increased. Everyone must do their job. Our job is price stability,” Lagarde said.

The bank aims to ensure the timely return of inflation to its 2% medium-term inflation target, she said.

"We will have further rate increases in the future, so the normalization process continues," Lagarde said, adding: "There is still ground to cover."

Pointing that eurozone economic activity is likely to have slowed significantly in the third quarter, Lagarde said, the bank estimates a further weakening in the rest of this year and the beginning of 2023.