European Central Bank raises rates by 75 basis points to tackle soaring inflation

The European Central Bank decided to raise its interest rate by 75 basis points.

It said in a statement that the major step frontloads the transition from the prevailing accommodative level of policy rates towards levels that will ensure the timely return of inflation.

Inflation is too high and is likely to stay above target for an extended period, so it expects interest rates to be raised further.

The euro remained flat against the British pound and rose slightly against the dollar, but markets had largely priced in a 75 basis point hike. For the first time in 20 years, the euro fell below 99 cents.

At its July meeting, the European Central Bank hiked from -0.5% to zero. The central bank has kept rates in negative territory in an effort to spur spending and combat low inflation.

Consumer prices in the euro zone rose by 9.1% in August, setting a ninth consecutive record and posing a new problem for the central bank.

The price of energy has gone up since Russia invaded Ukraine. Food, clothing, cars, household appliances and services are all seeing price increases. The effects of recent heatwaves have helped drive up prices.

The European Central Bank is willing to sacrifice growth in order to fight the pressures.

The euro zone's gross domestic product increased by 0.8% in the second quarter, but many analysts think it's only a matter of time before the euro zone goes into recession.

Unemployment across the bloc is at a record low of 6.6% and there are warnings of a recession.

The neutral rate is between 1% and 2%.

The portfolio manager at Pimco said that it was now "uncontroversial" to get within this range before the end of the year.

He said the most interesting question was what the highest point would be during the hiking cycle.

Markets want to know if it will move above the neutral range into tighter territory.