Rates have risen from a record low of -0.5% in July as the ECB responded to soaring inflation, which now show signs of easing.

The ECB signaled another half a percentage point increase for March, pressing ahead with policy tightening even as some global peers are slowing down.

MARKET REACTION:

FOREX: The euro traded at $1.0983, a touch lower from where it stood before the ECB's rate decision and just off 10-month highs hit earlier.

BONDS: Government bond yields across the euro area were lower, a move that also coincided with a drop in UK gilt yields after a Bank of England rate decision earlier. Germany's 10-year Bund yield was down 16 basis points at 2.14%. Italian yields were down 26 bps at 4.05%.

STOCKS: The broad euro STOXX 600 index was last up 0.9% on the day.

COMMENTS:

STUART COLE, HEAD MACRO ECONOMIST, EQUITI CAPITAL, LONDON

"It's telling that German yields are lower, suggesting the market is anticipating we may well yet see a reversal in policy sooner rather than later as policy suddenly veers back to supporting growth. That, for me, is why we are seeing equities higher. I am not sure the markets are fully buying into the longevity of this continued hawkish stance." 

"The ECB delivered the 50 bps as expected, but surprising that it communicated today another 50bps in March! Suggests the ECB is in a much more hawkish place than is the Fed or BoE at the moment.

"I can understand why the message we are getting from the ECB, ie that inflationary pressures are still too high, suggestions that growth is holding up, and therefore further tightening is needed. But the reaction we are seeing in the euro, as indeed we saw for sterling, suggests concerns that the ECB's actions may drive the economy into recession."

AZAD ZANGANA, SENIOR EUROPEAN ECONOMIST AND STRATEGIST, SCHRODERS, LONDON:

"What was a bit of a surprise was the pre announcement for the next meeting. The signal is pretty clear that they've got one more rate rise and then they could opt for smaller ones or they could stop all together. They've basically given themselves an opportunity to stop at that point (in March).

"That is interesting because in the past they haven't opted to pre-announce future decisions.

"They were some people that thought that because the economy had performed better than expected, the ECB would have to raise rates even higher that what had been expected.

"But the messaging from the ECB today seems to be quite confident in the progress that has been made and could potentially pause from March onwards. That would upset the more hawkish players in the market."

MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS, LONDON:

"They are trying to take any kind of uncertainty out of the market. The ECB is settling the debate about March.

"Headline inflation has come down a bit and core inflation has gone up a bit, so I don't see any surprises in the statement.

"We got what was indicated in December and they will reassess in March when they release latest macro forecasts."

(Reporting by Bansari Mayur Kamdar, Susan Mathew and Dhara Ranasinghe)