The European Central Bank raised interest rates again today and pencilled in at least one more hike of the same magnitude next month.

As expected, the ECB raised interest rates by 0.5% today, bringing the deposit rate to 2.5% and the main lending rate to 3%.

The ECB has been increasing rates at a record pace to fight a sudden bout of high inflation in the euro zone - the byproduct of factors such as the aftermath of the Covid-19 pandemic and an energy crisis that followed Russia's invasion of Ukraine.

The central bank for the 20 countries that share the euro raised the rate it pays on bank deposits by another half a percentage point to 2.5%.

This was in line with what it said in December and with market expectations. Crucially, it said the next rate increase would be of the same size.

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Before the decision, investors and economists were expecting the ECB to raise its deposit rate by another 50 basis points in March and take it to a peak of 3.25-3.5% by the summer.

This would be the highest rate since the turn of the century.

The US Federal Reserve last night slowed the pace of its own hikes and acknowledged that disinflation was under way, while reaffirming that borrowing costs still needed to rise further.

Before today's decision, ECB President Christine Lagarde had pushed back on any suggestion that the ECB was relenting in its fight against inflation and investors were generally expecting her to reaffirm that line.

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AIB to raise fixed and variable mortgage rates after ECB hike
Analysis: More interest rate hikes in prospect? Almost certainly

The recent economic data out of the euro zone had painted a mixed picture.

Headline inflation has been in rapid decline since peaking at a record 10.6% in October but core prices, which exclude volatile items such as food and fuel, have been rising at a steady or accelerating pace.

The euro zone unexpectedly eked out growth in the final three months of 2022 but this was largely due to an exceptionally mild winter and a stellar performance by Ireland.

And an ECB survey showed banks were tightening access to credit by the most since the 2011 debt crisis - usually the harbinger of lower growth and slowing inflation.

In December, the ECB said rates would be increased "at a steady pace" until it was happy inflation was heading back down to its 2% target.

But that guidance has since become a source of confusion for investors and contention within the Governing Council, as headline inflation fell sharply while underlying price growth was still inching up.

Policy hawks who favour higher rates, such as the Netherlands' Klaas Knot, Slovakia's Peter Kazimir and Slovenia's Bostjan Vasle, have explicitly called for a 50-basis-point hike in March too.

But doves, such as Greece's Yannis Stournaras and Italian board member Fabio Panetta, have argued for smaller moves, or at least for the ECB to refrain from making commitments for March.

How will today's ECB hike impact mortgage customers?

Around 200,000 tracker customers will see an almost immediate increase in their mortgage repayments.

The average margin on a tracker is around 1.15%, which means the average tracker customer will now be paying 4.15% compared to just 1.15% under a year ago.

Daragh Cassidy from price comparison website, said this means for those with €150,000 remaining on their mortgage the move will add around €35 a month to repayments.

However, when all increases since July are taken into account, he said the increase is over €200 a month.

"The ECB's move was widely expected and it will hike again in March," Mr Cassidy said.

"The question is when and by how much the main lenders here will respond," he added.

Trevor Grant, Chairperson of the Association of Irish Mortgage Advisors (AIMA) said for the 200,00 or so tracker mortgage customers who have yet to do so, it is definitely worth considering fixing your mortgage rate before it is too late.

"This advice also goes for those on variable rates or with fixed rates due to mature in the next 12 months or so.

"This latter cohort may be able to break their existing fixed rate agreement without penalty and lock in at lower rates than those which are likely to be available when their current fixed rate actually matures," he said.

Mr Grant said he would advise mortgage customers to get advice from a mortgage broker.

"The decision to give up a tracker rate is not one that should be taken lightly," he added.

If you have a tracker, Joey Sheahan, Head of Credit at online brokers said you need to take several factors into account before giving it up.

"There is really no going back," he said. "One of the biggest deciding factors for tracker holders is the margin at which their tracker is set.

"This will determine what kind of savings are likely to be made by switching to a different rate."