london sept 8 reuters  the european central bank raised interest rates by an unprecedented 75 basis points on thursday in an effort to tame runaway inflation read more the ecb lifted its deposit rate to 075 from zero and raised the main refinancing rate to 125 their highest level since 2011 as inflation is becoming increasingly broad and was at risk of getting entrenched euro zone bank stocks  jumped as much as 24 to their highest level in more than 2 weeks before paring gains and trade up 09 by 1312 gmt the broader euro zone stock market stoxxe wavered before turning lower last down 1 the euro briefly edged up after the decision but slid during ecb president christine lagardes press conference it was last 054 lower at 09951 the bloc’s bond yields rose following the decision and germany’s 10year bond yield the benchmark for the bloc was up 5 bps to 162 by 1245 gmt compared to around 158 before the decision nearing the highest since late june italian bond yields rose 2 bps to 388  the closelywatched risk premium they pay over german peers tightened to 224 bps i don’t think this will do much to help the euro given the degree to which gas prices are driving the market and the relentless nature by which the dollar continues to rally it feels like a long shot to think that a 75bps hike will do much to control inflation which will remain elevated acting as a lead weight on the economy as long as volatility in energy markets continues the move to hike by 75bps feels like more of a signalling thing than anything else given that markets had fully priced in such a move the ecb couldn’t disappoint with a more modest hike that would loosen financial conditions today’s further outsized rate increase is in response to an upside surprise in recent inflation data and a more hawkish inflation outlook ahead we agree with the ecb’s view that some of the factors driving inflation—deglobalisation rising physical climate risks and energy supply challenges—imply higher and more persistent inflation relative to the last cycle the central bank appears to believe a deceleration in growth which is projected to drop to below 1 in 2023 will be insufficient to alleviate inflation and that it is prudent to tighten policy forcefully to prevent inflation becoming more entrenched “it is no surprise that the euro rose a bit on the announcement but we think that the upside is not sustainable given that the euro remains a low yielding currency compared to others as the market also prices in a more than 5050 chance that the fed and the bank of england will hike rates by 075 percentage points in addition the rising cost of debt the recession italian election and geopolitical risks are headwinds for the euro bond markets and equity markets have reacted with some concern the rate hikes will further raise borrowing costs of peripheral countries and tighten financial conditions which may deepen the recession” “the ecb governing council’s decision to further increase rates is a sideshow to the increasing risks of sovereign debt sustainability more important is the disappointing lack of news on measures to be deployed to reduce the risk of another sovereign debt crisis “at the margin increasing policy rates will be a welcome boost for banks and savers who have been financially repressed yet this cannot solve the energy crisis exacerbated by russia’s ongoing aggression on ukraine central banks across the globe have hiked rates this week and we have reached almost 247 global rate hikes this year the ecb has been behind the curve so this 75 is them catching up the question the markets are trying to answer is where this will all end yes federal reserve chair jerome powell has pushed back the pivot but when do you get the pause that will lead to that pivot central banks have spent their time getting it wrong by calling inflation transitory now theyve changed tack at some stage they may go too far and the fear is they won’t change their mind again until something breaks with today’s decision it is clear that the ecb has given up on inflation targeting and forecasting and has joined the group of central banks focusing on bringing down actual inflation it’s not so much a new strategy based on conviction but rather a strategy based on missing alternatives we still can’t see how monetary policy can bring down inflation that is mainly driven by external supplyside factors “it is likely the phone lines between frankfurt and brussels will have been red hot over the past few days as europe’s fiscal and monetary policy authorities attempted to refine a joinedup approach to the latest crisis today we have seen one half of that approach but the region’s success in responding to the emergency will depend on marrying the tightening of monetary policy with the accompanying deficit spending it remains to be seen as to whether it is right to be weakening the economy through demand destruction by raising rates at all with energy security forming a destabilising backdrop i think they were moving in the direction of a 75 bps hike in the last few weeks as we had some hawkish comments it also looks like a hawkish statement too and there is an emphasis on upward revisions to inflation forecasts so they have delivered a big move in rates but its not enough to bring inflation down on a threeyear view reporting by london markets team and bureaus compiled by alun john editing by jason neely and frank jack daniel