The European Central Financial institution raised rates of interest to the best stage in additional than twenty years on Thursday, as policymakers continued their marketing campaign to stamp out inflation they mentioned was forecast to stay too excessive for too lengthy.

The financial institution, which units charges for the 20 nations that use the euro foreign money, lifted charges by 1 / 4 of a share level, placing the deposit fee at 3.5 p.c, the best since 2001. It was the financial institution’s eighth consecutive enhance, and policymakers signaled extra will increase would observe. Thursday’s transfer has been effectively telegraphed because the Governing Council’s final assembly in early Might, when policymakers expressed concern about underlying inflation pressures from wage progress and company earnings or the influence of rising meals costs.

“Inflation has been coming down however is projected to stay too excessive for too lengthy,” Christine Lagarde, the president of the financial institution, advised reporters on Thursday.

The choice comes a day after the Federal Reserve held rates of interest regular for the primary time in additional than a yr. After final month’s mirror picture transfer, when each raised charges a quarter-point, the 2 central banks have begun to diverge once more, partially as a result of the European Central Financial institution hasn’t been elevating rates of interest for as lengthy or as excessive because the Fed.

“We aren’t excited about pausing,” Ms. Lagarde mentioned on Thursday. It’s “very probably” that the financial institution will elevate charges once more at its subsequent assembly in July, so long as there isn’t a “materials change” to the financial institution’s expectations for inflation, she added.

“Are we executed? Have we completed the journey? No, we’re not at vacation spot,” Ms. Lagarde mentioned, including that policymakers will solely know once they get to the rate of interest they may keep without delay they get there.

Policymakers say they need to keep away from the danger of declaring victory of their struggle in opposition to rising costs prematurely, even because the eurozone’s annual fee of inflation has dropped from its double-digit peak late final yr to six.1 p.c in Might, the slowest tempo in additional than a yr. A lot of the slowdown will be attributed to decrease wholesale power prices, however central bankers have been alert to indicators that inflation is turning into embedded within the economic system, which may impede them from getting inflation again to the two p.c goal. For instance, greater wage prices for corporations will trigger core inflation, which excludes power and meals prices, to be greater than beforehand anticipated.

The central financial institution forecasts inflation to common 5.4 p.c this yr however nonetheless be above goal in two years’ time, at 2.2. p.c, barely greater than the earlier projections set out three months in the past.

However as inflation slows, the query of how a lot coverage tightening is the correct quantity has change into tough to gauge. An excessive amount of may restrain the economic system greater than needed and trigger or worsen a recession. Too little may enable inflation to change into a persistent downside that policymakers can’t root out. It’s a problem going through central bankers across the globe.

On Wednesday, the Fed didn’t elevate rates of interest and mentioned they had been giving themselves time to evaluate how the economic system is reacting to the fast tempo of previous fee will increase. However policymakers warned they could want to boost charges once more later. Such a sample has been lately established in Australia and Canada, the place central banks held charges regular for a brief interval earlier than resuming fee will increase.

In Might, the European Central Financial institution slowed down the tempo of its fee will increase because it acknowledged the influence that tighter financial coverage was having on the area’s economic system by means of extra restrictive lending situations at banks. On Thursday, the financial institution mentioned tighter financing situations are anticipated to more and more dampen demand.

Because the central financial institution signaled greater rates of interest it additionally barely lowered its forecasts for financial progress this yr and subsequent, predicting that the economic system would develop 0.9 p.c this yr and 1.5 p.c yr. The eurozone slipped into recession earlier this yr as excessive costs prompted individuals to tug again on spending.

The central financial institution’s subsequent choices “will make sure that the important thing E.C.B. rates of interest shall be dropped at ranges sufficiently restrictive to attain a well timed return of inflation to the two p.c medium-term goal,” it mentioned in its assertion, “and shall be saved at these ranges for so long as needed.”