The ECB President sees interest rates as the most important instrument against inflation. Another interest rate hike is likely to combat inflation.
ECB President Christine Lagarde has reaffirmed the central bank’s determination to fight record high inflation. “We assume that we will continue to raise interest rates,” Lagarde said on Friday at the “Frankfurt European Banking Congress”. “Ultimately, we will raise interest rates to a level that brings inflation back to our medium-term target in a timely manner.”
The European Central Bank is aiming for price stability in the euro area in the medium term with an inflation rate of two percent. In the euro area, consumer prices in October were 10.6 percent higher than in the same month last year. In Europe’s largest economy, Germany, the inflation rate rose to 10.4 percent in October.
Rising risk of recession
“Inflation in the euro area is far too high,” Lagarde said in Frankfurt. In addition, the risk of a recession has increased, although the latest data on growth in gross domestic product have surprised on the upside.
After a long period of hesitation, the ECB has been trying to get the extremely high inflation under control by raising interest rates sharply since July. The key interest rate in the euro area, which was frozen at a record low of zero percent for years, is now 2.0 percent.
“Interest rates are and will remain the most important tool for adjusting our policy course. But we must also normalize our other policy tools and thus increase the momentum of our interest rate policy,” said Lagarde. The ECB’s balance sheet, which has swollen over the years as a result of billions in securities purchases, must be normalized “moderately” and “in a predictable manner”. “In December we will set out the main principles for reducing bond holdings in our purchase program,” Lagarde announced. The Governing Council will meet again on December 15th.
Information on the event Speech text Lagarde 11/18/2022 Time series of key ECB interest rates Federal Statistical Office on inflation in Germany Eurostat on inflation in the euro area ECB explanations on inflation ECB video on inflation Introductory statement by Lagarde 8 September 2022 Monetary policy decisions by the ECB 27 October 2022 Introductory statement by Lagarde 27 October 2022