The European Central Bank has raised the key interest rate in the eurozone by 0.25 percentage points to 3.75 per cent, the Frankfurt-based bank says.

The announcement comes after the ECB raised the rate by 0.5 percentage points three consecutive times.

If banks lend money to the ECB, they will now receive 3.25 per cent interest in future, the bank said.

ECB president Christine Lagarde said that it has "more ground to cover, and we are not pausing".

With the interest rate hikes that began last July, the European Union's monetary guardians are trying to curb high inflation.

Higher interest rates make loans more expensive which can slow down demand and counteract high inflation rates.

The central bank aims for medium-term price stability in the eurozone at an inflation rate of 2.0 per cent.

This target has been missed by a wide margin for months.

Although inflation has tended to weaken in recent months, it has been slow of late.

"Inflation has been above our target since mid-2021, so it has been too high for almost two years," ECB chief economist Philip R Lane said in a recent interview, holding out the prospect of another rate hike for the May meeting.

"This is still not the right time to stop."

In April, inflation in the eurozone picked up again somewhat.

According to a first estimate by the statistics office Eurostat, consumer prices in the currency area of 20 states were 7.0 per cent above the level of the same month last year.

In March, the annual rate of inflation in the eurozone had fallen significantly from 8.5 per cent to 6.9 per cent.

"The longer inflation remains too high, the greater the risk that people's perceptions will change, that they will lose confidence in our ability to return to our 2.0 per cent target," Lane warned.

Higher inflation rates cause purchasing power to dwindle as consumers can afford less for each euro.

This weighs on economic growth, for which private consumption is an important pillar.

Rising interest rates on the other hand make loans more expensive for companies, which is why investments can fail, which is also slowing down the economy.

At the same time, the central bank no longer intends to use the funds from expiring securities from the asset purchase programme (APP) to purchase new bonds from July onwards.

The ECB had already stopped buying fresh securities as part of the programme on July 1, 2022.

with AP