The European Central Bank has raised eurozone interest rates by a quarter-percentage point to the highest level since 2001 and signalled another hike was likely as it seeks to tame inflation. It marks the eighth successive rate rise for the bank, underlining a struggle across many developed economies to cool price rises amid juddering economic growth. The latest increase pushes the ECB’s deposit rate, which is paid on commercial bank deposits, to 3.5% – the highest since 2001. Its main refinancing operations, which is the rate banks pay when they borrow money from the ECB, rose to 4% – the highest since 2008. Inflation is expected to average 5.4% in 2023, before dropping to 3% in 2024, according to fresh projections from ECB staff. The rate of price growth “has been coming down but is projected to remain too high for too long”, it said. The central bank’s rates cover the 19 member economies that make up the eurozone. The latest rate hike marks the sharp shift in economic forces when compared with last summer’s deposit rate of -0.5%. Last week, revised data showed that the eurozone had slipped into recession as the rising cost of living dampened consumer spending. Economic output shrank by 0.1% in the final quarter of 2022 and the first quarter of 2023, according to official data from Eurostat. A technical recession is generally defined as two consecutive quarters of negative growth. The central bank was “very likely” to raise rates again in July, Christine Lagarde, president of the ECB told reporters after the rate decision was announced. “Barring a material change to our baseline, it is very likely the case that we will continue to increase rates in July. “We have ground to cover,” she added in the context of bringing inflation in line with a 2% target. The ECB’s rate rise came after the US Federal Reserve paused its interest rate hikes on Wednesday. This left the US central bank’s key rate range at 5% to 5.25%. The Federal Open Market Committee suggested the pause would give it time to take stock of the situation and did not rule out further increases. “Holding the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy … In assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook,” it said. The sense that inflation was still a problem for the US economy was underlined by remarks made by the Fed chair, Jerome Powell, at a press conference on Wednesday. He said: “Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2% over time,” Powell said. The former Bank of England governor Mark Carney told ITV’s Peston programme that higher interest rates would be a long-term challenge for major economies. In the UK, Canada and elsewhere there would be higher interest rates on debt for the “foreseeable future”, Carney said. “Not just measured in 12 months, 24 months, but actually, the big tectonic shifts in the global economy mean that we are likely to have higher longer-term interest rates for a period,” he added.