ECB rate hikes coming, as Lagarde heralds fight against inflation

Christine Lagarde, President of the European Central Bank (ECB), speaks during the 32nd European Banking Congress. Photo: Hannes P. Albert/dpa

The eurozone needs to brace itself for hikes in interest rates, European Central Bank (ECB) President Christine Lagarde warned on Friday, as she outlined the bank’s efforts to curb inflation.

“We expect to raise rates further,” she told people attending the Frankfurt European Banking Congress. “Ultimately, we will raise rates to levels that bring inflation back down to our medium-term target in a timely manner.”

The ECB’s goal is to keep inflation at about 2%. But October data put eurozone inflation at 10.6% higher than the same month a year earlier. The inflation rate in Germany, Europe’s largest economy, stands at 10.4%.

“Inflation in the euro area is far too high, having reached double digits in October for the first time since the start of the monetary union,” she said.

At the same time, she warned that the risks of economic recession have risen, despite a few recent positive surprises in gross domestic product data.

After waiting a long time to hike rates, the ECB began raising them rapidly in July, in an attempt to grapple with rapidly rising inflation. The eurozone’s prime interest rate, which had been stuck at 0% for years, is now at 2%.

“Interest rates are, and will remain, the main tool for adjusting our policy stance. But we also need to normalize our other policy tools and so reinforce the impulse from our rate policy,” Lagarde said.

She noted that efforts during the last decade to stabilize the eurozone economy have meant the ECB has purchased large amounts of European government bonds. Those must now be sold onwards to ease the ECB’s accounting books.

“In December we will lay out the key principles for reducing the bond holdings in our asset purchase programme portfolio,” she said. The next ECB council meeting is set for December 15.

 

 

Courtesy © dpa Deutsche Presse-Agentur GmbH www.dpa.com

 

 

 

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