ECB to raise interest rates, likely to trim bank subsidies

The European Central Bank will raise interest rates again Thursday and likely get a key subsidy to commercial banks, taking another important step in tightening policy to combat a historic spike in inflation, Reuters reported.

Fearing that rapid price increases will take root, the ECB has already raised rates at the fastest pace in history, and no easing is expected anytime soon, as winding down the decade-long stimulus could take a long time next year and beyond.

The ECB will almost certainly raise its deposit rate by 0.75%.

But in a potentially more important decision, the bank is also likely to take the first steps toward reducing its €8.8 trillion balance sheet, bloated by years of debt purchases and super-cheap loans to banks.

ECB President Christine Lagarde is likely to give only vague guidance on future actions, saying further hikes are likely, but incoming data and new economic forecasts in December will be key.

"We suspect she will be hinting, pointing to the growing likelihood that rates will have to rise into restrictive territory and a slower pace of increases after today's bold move", UniCredit said in a note.

The ECB's interest rate decision is due to be published at 0:15 p.m. GMT.