The European Central Bank opted for a smaller rate hike at its Thursday meeting, taking its key rate from 1.5% to 2%, but said it would need to raise rates “significantly” further to tame inflation.

It also said that from the beginning of March 2023 it would begin to reduce its balance sheet by 15 billion euros ($15.9 billion) per month on average until the end of the second quarter of 2023.

It said it would announce more details about the reduction of its asset purchase program (APP) holdings in February, and that it would regularly reassess the pace of decline to ensure it was consistent with its monetary policy strategy.

The widely expected 50 basis point rate rise is the central bank’s fourth increase this year. A basis point is equivalent to 0.01%.

It hiked by 75 basis points in October and September and by 50 basis points in July, bringing rates out of negative territory for the first time since 2014.

“The Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target,” the ECB said in a statement.

At a news conference following the announcement, ECB President Christine Lagarde said: “Anybody who thinks this is a pivot for the ECB is wrong. We’re not pivoting, we’re not wavering, we are showing determination and resilience in continuing a journey where we have. … If you compare with the Fed, we have more ground to cover. We have longer to go.”

“We’re not slowing down. We’re in for the long game.”

The central bank said it was working on euro zone inflation forecasts that had been “significantly revised up,” and sees inflation remaining above its 2% target until 2025.

It now expects average inflation of 8.4% in 2022, 6.3% in 2023, 3.4% in 2024 and 2.3% in 2025.

However, it sees a recession in the region being “relatively short-lived and shallow.”

It comes after the latest inflation data for the euro zone showed a slight slowing in price rises in November, although the rate remains at 10% annually.

Lagarde told CNBC’s Annette Weisbach, “One of the key messages, in addition to the hike, is the indication that not only will we raise interest rates further, which we had said before, but that today we judged that interest rates will still have to rise significantly, at a steady place.”

“It is pretty much obvious that on the basis of the data that we have at the moment, significant rise at a steady pace means we should have to raise interest rates at a 50 basis point pace for a period of time,” she said.

Regarding the announcement on quantitative tightening, she said the ECB wanted to follow the principles of being predictable and measured.

Its decision to make average 15 billion euro reductions in its APP over four months represents roughly half the redemptions over that period of time, and was based on advice from its market team and all central banks and other officials involved in its decision-making, Lagarde said.

“It seemed an appropriate number in order to normalize our balance sheet, bearing in mind that the key tool is the interest rate,” she added.

The ECB will achieve the reduction by not reinvesting all of the principal payments from maturing securities in its 5 trillion euro bond portfolio.

The euro rose from a 0.5% loss against the dollar to a 0.4% gain following the announcement, but European equities in the Stoxx 600 index dropped 2.4%.

The U.S. Federal Reserve on Wednesday increased its main rate by 0.5 percentage point, as did the Bank of England and the Swiss National Bank on Thursday morning.

“In contrast to the Bank of England, this is a hawkish hike, given the language on [quantitative tightening] and a definitive start date,” said analysts at BMO Capital Markets.

However, they noted the ECB was lagging other central banks in reducing its balance sheet and that reinvestments under its pandemic emergency purchase program would continue.

“The language in the statement has an operational feel to it, and the Bank is leaving the path of QT open-ended,” they wrote in a note.

Antoine Bouvet, senior rates strategist at ING, also described the announcement as “hawkish.”

“The main take away from this meeting was higher than expected inflation projections and so the need for the ECB to hike more than anticipated by the market,” he said by email.

“Lagarde clearly guided the market to anticipate more 50 basis point hikes, in February and in March, and pushed back against the notion that it will be able to cut rates any time soon. The upshot as you might expect is a surge in front-end bond yields, but I think it is the whole curve that needs to move higher.”

“The QT announcement was more specific than I would have expected with a size and an earlier start date. This also adds to upside in bond yields, especially peripheral bonds, but it is worth keeping in mind that most European bond markets see greater net supply next year after ECB intervention so this is relevant for all countries,” he said by email.