The European Central Bank raised its key interest rates by 0.25% Thursday, as broadly expected by the market, increasing the marginal lending facility rate to 3.75%, the highest since the end of 2008.

The ECB policy decision comes a day after the Federal Reserve also raised interest rates by 0.25% to 5.25%, the highest level since September 2007.

After three straight increases of 0.5%, the ECB slowed the pace of hikes as elevated borrowing costs have started taking a toll on the economy, resulting in a 0.1% GDP growth rate for the euro area last quarter and economic stagnation in Germany."The inflation outlook continues to be too high for too long," the ECB said in a statement.

According to the ECB Governing Council, underlying price pressures remain strong, despite headline inflation having declined over the past month. The ECB said future policy rate decisions will continue to be based on its assessment of the inflation outlook in light of incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.

The ECB also indicated that it expects to "discontinue the reinvestments under the Asset Purchase Program (APP) as of July 2023."

ECB Governor Lagarde's Press Conference: Key Remarks

ECB Governor Christine Lagarde's tone during her press conference on Thursday was fairly hawkish: 

• This is not pausing, the ECB has more ground to cover, she said; we've not arrived yet to the end of the journey. 
• All ECB members were committed in raising rates, with some indicating a larger increase.
• "I'm not making any commitment to cut rates at any point in time."
• "We are not Fed dependent, we can tighten if the Fed pauses."
• Price pressures remain strong and the ECB is particularly concerned about food inflation, she said. 
• The ultimate goal is to reduce APP bond holdings to zero.
• Member states governments should roll back energy support measures. 

Market Reaction After Lagarde's Press Remarks

European equities extended lossess after the Lagarde's press conference, with the iShares MSCI Eurozone ETF (NYSE:EZU), down 0.75% for the session. 

The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust (NYSE:FXE), dropped by 0.5% to 1.1011.

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