ECB hikes rates, sees significant increases ahead as it announces plan to shrink balance sheet

President of the European Central Bank Christine Lagarde attends a hearing of the Committee on Economic and Monetary Affairs in the European Parliament on November 28, 2022 in Brussels, Belgium.

Thierry Monasse | Getty Images News | Getty Images

The European Central Bank opted for a smaller rate hike at its Thursday meeting, taking its key rate from 1.5% to 2%.

It said that from the beginning of March 2023 it would begin to reduce its balance sheet by 15 billion euros ($16 billion) per month on average until the end of the second quarter of 2023.

The widely-expected 50 basis point rise is the central bank’s fourth increase this year.

It hiked by 75 basis points in October and September and by 50 basis points in July, bringing rates out of negative territory for the first time since 2014.

ECB President Christine Lagarde is due to deliver a press conference around 2:45 p.m. CEST.

It comes after the latest inflation data for the euro zone showed a slight slow in price rises in November, although the rate remains at 10% annually.

The U.S. Federal Reserve on Wednesday increased its main rate by 0.5 percentage points, as did the Bank of England and Swiss National Bank on Thursday morning.

A downshift in the pace of tightening by major central banks had been “widely telegraphed for weeks,” Frederik Ducrozet, global strategist at Pictet Wealth Management, told CNBC’s “Squawk Box Europe” ahead of the ECB announcement.

However, there are several reasons Lagarde could take a more hawkish tone in her press conference, Ducrozet continued. These include recent indications that the euro zone may experience a milder recession than previously expected, with some countries avoiding a contraction during winter; inflation running higher and more persistent than in the U.S.; and because the ECB is yet to start other forms of policy normalization, including of its balance sheet, Ducrozet added.

This is a breaking news story. Please check back for updates.

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