The European Central Bank said on Thursday that it would raise interest rates next month.
The governing council decided to raise its key interest rates by 25 basis points at its July meeting.
The scale of the hike will depend on the trajectory of the inflation outlook.
The interest rates on the marginal lending facility and deposit facility have not changed.
The Governing Council of the European Central Bank expects a gradual but sustained path of further increases in interest rates.
The pace at which the Governing Council adjusts its monetary policy will depend on the incoming data and how it assesses inflation in the medium term.
The annual consumer price inflation in the 19-member euro area hit a fresh record high of 8.1% in May, but the previous guidance from the European Central Bank indicated that a first rate hike would only come after July 1.
Markets were eagerly anticipating the meeting of the Governing Council in Amsterdam on Thursday for signs of how aggressive the shift in interest rates will be.
Policymakers face the challenge of reining in inflation without compounding the economic downturn caused by the war in Ukraine and the associated sanctions and embargoes imposed between the EU and Russia.
The European Central Bank is expected to climb out of negative rate territory by the end of September, but economists are torn on whether to expect hikes of 25 or 50 basis points at the July and September meetings.
The inflation projections were revised upward by the European Central Bank. In the next three years, annual inflation is expected to go from 6.8% to 4.1%. In March, it was projected that 5.1% in 2022, 2.1% in 2023 and 1.9% in 2024.
The growth forecasts were revised down to 2.8% in 2022. Projections at the March meeting of the European Central Bank were 4.2%, 2.8%, and 1.6%.
The former governor of the Federal Reserve System told CNBC that it was important for the European Central Bank to move on interest rates.
The U.S. Federal Reserve began hiking rates in March and implemented a 50 basis point hike in May. The base interest rate in the Bank of England has risen to a 13 year high.
It has the potential to become entrenched unless theECB policymakers move aggressively and make it clear that they are going to be moving further, according to CNBC's "Squawk Box Europe" on Thursday.
The risk of inflation becoming entrenched, inflation expectations becoming unanchored, and having to raise rates much higher than they otherwise would have to is what they run.
The Governing Council is in a difficult position because of Europe's proximity to the war in Ukraine and the state of economic peril.
There are so many negative shocks coming from the war, sanctions, uncertainty that the economy is going to slow down even without raising rates, so the inflationary pressures are going to come off
There is enough inflationary pressure and the risk of inflation expectations being unanchored that they have to get moving.
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