European Central Bank raises rates by 25 bps

The European Central Bank (ECB) raised its key interest rates by 25 basis points (bps) on Thursday to curb inflation.

After the rate hike, the interest rates on the main refinancing operations, on the marginal lending facility and on the deposit facility will be increased to 4.25 percent, 4.50 percent and 3.75 percent, respectively, with effect from Aug. 2.

"The rate increase today reflects the (ECB) Governing Council's assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission," the bank said in a statement.

In spite of the recent declines of inflation in the eurozone, the ECB sticks to its assessment that inflation will "remain too high for too long."

The ECB insists that key interest rates will be set at "sufficiently restrictive levels for as long as necessary" to ensure that inflation edges down to the target of 2 percent in the medium term.

According to the ECB's most recent prediction, inflation in the eurozone is predicted to be 5.4 percent in 2023, 3 percent in 2024, and 2.2 percent in 2025.

Together with other factors, the tightened monetary policy has weakened the eurozone economy, which according to the ECB is expected to remain weak in the short run before it picks up again.