The ECB interest rate is heading towards 4 percent by May and is not expected to fall back anytime soon

The ECB intends to raise interest rates again to 3.5 percent at its next meeting on March 16, barring any “extreme” events.

Thursday’s surge has already brought it to 3 percent after being less than zero last July. An increase on the cards for May is expected to add another quarter or half percent.

More rate hikes are on the way if core inflation – excluding energy, food and alcohol prices – fails to come down from a record high of 5.2 percent, hit in December and stalled in January.

“I’m not suggesting it will be like that [a] steady pace [of hikes] for an ongoing basis,” Ms. Lagarde said. “It could be 50 [basis points]it could be 25, it could be whatever is needed.”

And “that won’t be enough,” she said. “We have to stay there.”

However, experts warn that the ECB could be chasing inflation at the expense of the economy.

“If the ECB continues to hike rates aggressively, it is unlikely to change the path of inflation significantly, but it could trigger more problematic developments in terms of economic activity and/or financial stability,” said economist Austin Hughes.

Bank lending is already feeling the pinch, Ms Lagarde conceded, with tighter credit conditions and lower credit demand proving that rate hikes have been “transmitted well” by the economy.

Eurozone growth was positive for the last three months of 2022, a positive surprise partly due to Ireland’s outperformance.

Price increases have also slowed, although food inflation is picking up and core inflation is flat.

“The banshee of Irish folklore weeps to warn of impending disaster,” said Mr. Hughes. “For much of the past year, this catastrophe was viewed as runaway inflation. That risk now seems exaggerated.”

After holding back for a while following the ECB’s first rate hike last July, Irish banks have started to pass on those hikes.

AIB announced a 0.35 percent increase for all variable-rate mortgage customers — the first of the top three lenders — effective mid-March.

It has also raised interest rates for tracker and fixed-rate borrowers.

But the lender said it would reward personal and business savers with an increase
Deposit rates after the ECB raised its main deposit rate to 2.5 percent.

The Bank of Ireland said it would “review all interest rates on an ongoing basis” after confirming those with tracker mortgages would pay more from February 22.

Industry group Brokers Ireland slammed the ECB for failing to say where and when rate hikes would “end”.

Five consecutive increases have added up to €400 a month to a €330,000 mortgage, the group estimates, with another raise in March adding another €88.

“The most important thing for mortgage holders and those seeking a mortgage is to focus on getting the best interest rate they can secure, especially while there are still reasonable interest rates available in the market,” said Rachel McGovern, director of Financial Services at Brokers Ireland.

Carsten Brzeski, ING Bank’s global head of macro, also urged Ms Lagarde to bring “more fog than clarity” to the ECB’s trek, despite her attempts to quash criticism by insisting that the bank’s determination to bringing inflation down to 2 percent “shouldn’t be doubted”.

He said the ECB is likely to “continue to hike into late spring, but also keep interest rates high longer than markets are currently planning”.

Aside from core inflation data, the ECB is also examining how governments are responding to ongoing pressures on the cost of living, urging states to roll back stimulus if inflation eases.

It was a message Ms Lagarde said she conveyed to Eurogroup President Paschal Donohoe, who was with ECB governors for dinner on Wednesday night.

While she spoke of “disinflationary forces” – lower energy prices and subdued consumer demand – she also said prices could rise higher on government stimulus measures and China’s post-Covid reopening.

The ECB’s rate hike came on the same day that the Bank of England hiked rates by half a point to 4 per cent, its tenth straight hike, with Governor Andrew Bailey saying it was “too early to say victory over the high to explain inflation”.