The European Central Bank just hiked interest rates for the first time in 11 years, amid political and economic crisis

• The European Central Bank raised interest rates — by 50 basis points — for the first time since 2011 on Thursday.
• The central bank is trying to tame red-hot inflation even as an energy crunch drives an economic slowdown.

The European Central Bank raised interest rates for the first time in 11 years on Thursday, as it begins the tricky task of trying to bring down inflation without derailing an increasingly fragile eurozone economy.

The ECB's governing council raised interest rates by 50 basis points, or 0.5 percentage points — more than the 25 basis point hike it telegraphed at its June meeting. That took the central bank's main deposit rate to 0%, from a record low of -0.5%.

The ECB is grappling with a treacherous economic and political environment. Inflation in the eurozone — the group of 19 countries that use the euro as currency — soared to a record high of 8.6% in June.

However, the economy is also weakening fast as Russia limits natural gas flows to the continent and energy prices soar. Goldman Sachs expects Germany and Italy to soon tip into recession.

To add to the pressure on the central bank, Italy's Prime Minister Mario Draghi resigned on Thursday, plunging the country back into political chaos just hours before the ECB announced its decision.

Italy's government has huge debts worth around 150% of the country's gross domestic product. Stopping its borrowing costs from spiraling out of control is a key concern for the ECB.

With borrowing costs in mind, the ECB said Thursday it will introduce a "transmission protection instrument" that can be used to buy government bonds "to counter unwarranted, disorderly market dynamics."

The ECB's rate hike signals an end to the era of ultra-loose monetary policy that has marked the last decade in the Eurozone. It said more rate rises are on the way.

"The governing council judged that it is appropriate to take a larger first step on its policy rate normalization path than signaled at its previous meeting," the ECB said in a statement. "At the Governing Council's upcoming meetings, further normalization of interest rates will be appropriate."

Andrew Kenningham, chief Europe economist at Capital Economics, said: "We think this will be the first of a series of hikes by which the ECB will raise the deposit rate to around 2% next year."

"We also think the bank will ultimately have to use its new asset purchase programme to avert another eurozone crisis," he added.

The euro shot higher after the decision, and was last up 0.8% against the dollar at $1.026.

Italian government bond yields, which jumped when Draghi resigned earlier in the day, were little changed after the decision. They were up around 21 basis points to 3.579%. Yields move inversely to prices.