ECB warns of more rate hikes to come after 0.75pc rise


Prepare for further interest rate hikes this year and next, the head of the European Central Bank has warned, as prices are to stay higher for longer.

CB president Christine Lagarde said it would probably take “more than two” meetings and “less than five” to get interest rates to their desired level.

The ECB’s 25-member governing council agreed – unanimously – to raise rates by 0.75pc on Thursday, at the higher end of the scale expected by markets.

Ms Lagarde said “determined action had to be taken” due to soaring prices, although there were “different views around the table” during the discussion.

“We raised the three key ECB interest rates by 75 basis points, and expect to raise interest rates further, because inflation remains far too high, and is likely to stay above our target for an extended period,” she told reports on Thursday.

“This is not an isolated decision. We will raise interest rates further. I didn’t say we would raise at 75 [basis points], as if 75 were the norm. It is not.”

The decision comes a week after data showed eurozone inflation rose to a record 9.1pc in August, compared to a year earlier.

While energy and food prices are rising fastest, price spikes have spread across all goods and services in the economy.

ECB staff now predict inflation will hit 8.1pc on average this year before coming down to 5.5pc next year and 2.3pc in 2024.

Economists at the Frankfurt-based institution are not predicting a recession this year – although they say growth will stagnate in the winter.

The ECB predicts gross domestic product will grow by 3.1pc in 2022, 0.9pc in 2023 and 1.9pc in 2024.

However, activity in the 19-member economy could shrink by 0.9pc next year in the event of a total shutdown of Russian gas, energy rationing and no alternative sources of fuel coming in.

The ECB is “front loading” interest rate hikes, Ms Lagarde said, although it is not committing to any specific hikes in future.

She said the ECB will decide based on how far away it is from its medium term inflation target of 2pc.

“Am I saying here that as we get closer to those rates, the incremental interest rate increases will be smaller? No.

“I’m not saying that because we will proceed meeting by meeting.

“The further away we are, the larger the step we are taking, which is why we are front loading now.”



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