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The euro fell against the dollar, sliding 0.2% to $1.0692, having traded little changed ahead of the policy outcome. Image Credit: AP

Brussels: The European Central Bank committed to a quarter-point increase in interest rates next month and opened the door to a bigger hike in the fall as it confronts record inflation.

Announcing a first rise in borrowing costs in more than a decade, the ECB on Thursday described a series of rate moves to come. With fresh forecasts signaling a faster path for euro-zone prices than previously thought, it will cease large-scale asset purchases on July 1.

“If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting,” the ECB said in a statement. Beyond that, “based on its current assessment, the Governing Council anticipates that a gradual but sustained path of further increases in interest rates will be appropriate.”

That would bring the deposit rate to at least zero by the end of the third quarter, from -0.5 per cent at present, concluding an eight-year stint of negative borrowing costs and affirming a plan laid out earlier by President Christine Lagarde. The ECB sees inflation averaging 2.1 per cent in 2024 - exceeding its 2 per cent goal.

Thursday’s decisions crystallize the ECB’s exit from years of stimulus and are more aggressive than most economists predicted. The ECB had faced criticism from some quarters for lagging behind its peers, with more than 60 other global central banks already having raised rates this year.

The announcements follow another unexpectedly steep surge in euro-area inflation, which stood at 8.1 per cent in May - more than four times the target. Soaring prices are squeezing households across the continent, with governments spending billions of euros to shield people from a spike in energy costs driven by Russia’s attack on Ukraine.

The relentless inflation is feeding a fierce debate among ECB officials over the size of July’s rate increase, with a sizable contingent pushing to consider a half-point hike matching the most recent move by the Federal Reserve. Lagarde may offer some insight into the Governing Council’s preference when she briefs reporters at 2:30 p.m.