ECB Springs Aggressive Rate Hike, First Since 2011

The European Central Bank on Thursday brought an end to the era of negative interest rates in the eurozone, with a bigger than expected half-point hike as inflation soars and an energy crisis looms.

The rate hike is the Frankfurt institution's first since 2011.

The ECB said its new "assessment of inflation risks" justified taking "a larger first step on its policy rate normalisation path than signaled at its previous meeting" in June when policymakers shared their intent to raise rates by a more modest 25 basis points or a quarter of a percentage point.

Inflation in the eurozone hit 8.6 percent in June, the highest-ever level in the currency club and well above the central bank's target of two percent.

The ECB also unveiled the first details of a new crisis tool to fight bond market stress in parts of the eurozone.

The instrument is a response to recent increases in borrowing costs for governments in more highly indebted, usually southern eurozone members, such as Italy.

Dubbed the "Transmission Protection Instrument (TPI)", the targeted bond-buying scheme "can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area," the ECB said in a statement.

The ECB's hike lifts its deposit facility out of negative territory for the first time in eight years, to zero percent.

The rate on its main refinancing operations climbs to 0.50 percent and on its marginal lending facility to 0.75 percent.

With prices taking off, the euro weak against the dollar and other central banks racing ahead with bigger hikes, the ECB was under pressure to think about making a bigger move at the meeting on Thursday.

Future rate hikes "will be appropriate", the ECB said, as it looks to catch up with the US Federal Reserve and the Bank of England which both started raising rates earlier and more aggressively. (AFP)