The European Central Bank raised interest rates for the ninth consecutive time on Thursday and kept the door open to further tightening, as stubborn inflation and a growing risk of a recession pull policymakers in opposing directions.

Fighting off a historic surge in prices, the ECB has now lifted borrowing costs by a combined 425 basis points since last July, worried that excessive price growth could be perpetuated via wage rises as the jobs market remains exceptionally tight.

The ECB's news conference takes place at 1245 GMT.

MARKET REACTION:

FOREX: The euro fell and was down marginally on the day at $1.1075 versus $1.1126 just before the statement.

BONDS: Euro zone government bond yields fell. Germany's 10-year Bund yield was down 5 basis points (bps) at 2.40%, having stood at 2.43% just before the ECB rate decision. Italian yields were last down 4 bps at 4.07%.

STOCKS: The broad European STOXX 600 index edged up and was last up 1.17% %. An index of European banking stocks was up 1.24%

COMMENTS:

LEE HARDMAN, SENIOR CURRENCY ANALYST, MUFG, LONDON

"The statement is signaling that the ECB is now more comfortable that the policy rate has reached restrictive levels. Previously they said it would be brought to more restrictive levels, now it’s going to be 'set at sufficiently restrictive levels'.

The policy focus going forward will be less about raising rates and more about keeping them at higher levels for longer.

For markets that’s another step towards the ECB is saying the end of the hiking cycle is near. That’s triggered the euro sell off."

CLÉMENCE DACHICOURT, PORTFOLIO MANAGER, MORNINGSTAR, PARIS

"The ECB’s latest 0.25% increase in interest rates comes as no surprise. However, recent activity surveys suggest the economic slowdown is now affecting both manufacturing and services within the Eurozone. This points towards the ECB nearing the end of its rate hiking cycle, but the persistency in core inflation also tells us rate cuts are not on the agenda for now."

NEIL BIRRELL, CHIEF INVESTMENT OFFICER, PREMIER MITON INVESTORS, UK

"The ECB went with the expected 0.25% rate hike, but of much more interest is whether there will be another one in September. That will clearly be subject to the two inflation data releases between now and then. Whatever they mean for the overall outlook, either way, the ECB will want to retain flexibility. If rates are yet not at the peak, we are not far away, and the conversation may soon move to how long they will stay at the peak."

ARNE PETIMEZAS, SENIOR ANALYST, AFS GROUP, AMSTERDAM

"A boring statement that tells us nothing new. The decision for September will remain wide open, even though the ECB has to stick with a hawkish bias, given still high inflation.

The interesting part is cutting remuneration on banks' required reserves to zero (was 3.25%). While the ECB tries to sell the move as designed to protect the singleness of monetary policy, in reality it is purely profit-driven. The ECB is bleeding heavily on its bond portfolio (often bought at negative yields) while paying a relatively high nominal rate of banks' required and excess reserves. The move will save the ECB 6 billion euros on an annual basis, roughly speaking."

GUY MILLER, CHIEF MARKET STRATEGIST, ZURICH INSURANCE GROUP, ZURICH

"It was pretty clear heading in the meeting that a 25 bps hike was a given, so no surprises there. There is a realization for the need for some caution going forward. A lot of the is dreadful, especially from the manufacturing sector.

The two big economies, Germany and France, are suffering the most. So, the ECB will acknowledge the fact that the trajectory is a concern. What is important is the bank lending data we got the other day, that showed the demand side plunged.

Bond yields are coming down on the news and I think that is a fair reaction. The risk of another 25 bps hike is not off the table because inflation is still way above target and wage growth remains troublesome.

The ECB will feel it still needs to talk hawkish other wise markets will price in a cut and financial conditions will ease."

SAMY CHAAR, CHIEF ECONOMIST, LOMBARD ODIER, GENEVA:

"I think we are clearly reaching the peak here. I would reach the same conclusion as for the Fed yesterday, they are going to be data dependent, but if you think what we think, the data would allow them to skip, or plateau in September."

"Christine Lagarde has one job to do to today (at the press conference) to avoid the easing of financial conditions. Softer actions have to be accompanied by harder communication. Once you’re at peak you have to talk tough, we would expect her to be very concerned about inflation etc, but in the grand scheme of things we are very close to the peak."

MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS, LONDON:

"The statement looks similar to what they said in mid-June, that they have more work to do, so they are preparing markets for another move in September.

Our view has long been that the deposit rate will rise to 4%. In September they are likely to change the forward guidance."

(Compiled by Dhara Ranasinghe; Editing by Amanda Cooper)