On Thursday, ECB hiked interest rates by 25 basis points to 3.25%, as predicted, and signaled that more aggressive policy would be required to keep inflation under control.

Since last July, the central bank for the eurozone's 20 member countries has raised interest rates by a total of 375 basis points, the quickest rate of tightening. However, it stated more tightening was likely due to rising wage and price pressures.

That followed US Fed’s raise for its key interest rate by 25 bps, to a range of 5.00-5.25%, but hinted that it might be the last in the 10 consecutive hikes.

Lagarde stated that there were still significant upside risks to inflation, owing to recent pay agreements and high corporate profit margins, and that financial conditions remained insufficiently tight.

The ECB action comes just days after eurozone banking data revealed the largest reduction in loan demand in over a decade. This shows that earlier rate increases are having an effect on the economy and that ECB policies are currently limiting growth.