The European Central Bank (ECB) has hiked interest rates for a 10th consecutive time in a bid to tackle high inflation.

The bank's Governing Council decided to raise the three key ECB interest rates by 25 basis points. The move, which was expected by financial markets, means rates are at highest level since the euro was launched in 1999.

"Inflation continues to decline but is still expected to remain too high for too long," it said on Thursday.

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The ECB's benchmark deposit facility rate, which is paid to commercial banks when they deposit money with the central bank overnight, rose from 3.75% to 4%.

The main refinancing rate, which provides the bulk of liquidity to the banking system, has increased from 4.25% to 4.5%, and the marginal lending facility, charged when banks borrow from the ECB, has risen to 4.75%.

"The inflation momentum is simply too strong for the ECB to pause," Danske Bank economist Piet Haines Christiansen said.

On the back of the announcement, the euro gave up nearly all of its gains against the pound.

Policymakers including Slovakia’s Peter Kazimir have previously warned that eurozone inflation will fail to revert to the 2% target without further rate increases.

But others, such as Portugal's Mario Centeno, have cautioned that continued rises in borrowing costs would imperil Europe’s struggling economy amid a deterioration in economic activity.

ECB president Christine Lagarde said: "The services sector in the eurozone is creating fewer jobs although generally the labour market has remained resilient so far."

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On Thursday, however, the ECB signalled that this possibly could be the the end of the rate hikes.

"Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target."

Neil Wilson of Markets.com said: "This is a clear and deliberate signal to the market that the ECB thinks it is done for now and we have reached the peak in rates."

Meanwhile, Dean Turner, chief eurozone and UK economist at UBS Global Wealth Management, said: "We expect this to be the last hike from the ECB in this cycle, but that does not mean the era of tight monetary policy is over. Interest rates are likely to remain at these levels well into next year. Moreover, the ECB will continue to, and may even accelerate, the shrinking of its balance sheet."

But at the press conference Lagarde said the decision was “complicated,” adding “we can’t say rates have reached their peak”.

The ECB also lifted its inflation forecasts for 2023, and next year.

"The September ECB staff macroeconomic projections for the euro area see average inflation at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025. This is an upward revision for 2023 and 2024 and a downward revision for 2025. The upward revision for 2023 and 2024 mainly reflects a higher path for energy prices."

However, it cut its forecast for 2025 to from 2.2% to 2.1%.

It comes as growth in the 27-country EU for 2023 has been revised down, from 1% to 0.8%.Inflation in the eurozone is expected to average 5.6% in 2023, compared with 5.8% in the spring. In the broader EU, inflation is forecast to be 6.5% rather than 6.7%.

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