Lagarde considers more interest rate moves: ECB “cannot control” most inflation factors

Lagarde considers more rate hikes
ECB “Cannot Control” Most Inflation Factors

The head of the European Central Bank is not satisfied with the recent interest rate hike. Lagarde wants to continue fighting inflation in the euro area by all means. However, central banks only have a moderate influence on the current development, she admits.

According to its President Christine Lagarde, the European Central Bank does not want to relax in the fight against inflation. “We will raise interest rates for as long as it takes to bring inflation back to our target,” Lagarde said in a guest post for the Funke media group’s newspapers. However, Lagarde also conceded that the ECB can only influence the inflation rate to a limited extent at the moment. “This inflation is due in large part to factors that central banks cannot control,” she wrote.

However, the institutes could ensure that inflation does not remain at a permanently high level. “This could happen if prices increase across the board in the economy and people fear higher inflation in the future,” said Lagarde. This could then be a kind wage-price spiral set in motion, which in the past has caused inflation to spiral out of control.

The ECB is aware that there is great uncertainty in Europe, not least because of the war in Ukraine and energy prices. Lagarde was combative in the post: “We are united in our determination to bring inflation back to our 2% target in the medium term,” she said. The Governing Council will monitor how the economy is developing and react to the numerous external and internal challenges, she said. He will then review the situation and, based on the newly available data, decide on the right pace for the next steps. The ECB initiated the turnaround on interest rates on Thursday and held out the prospect of further interest rate hikes.

Last rate hike in 2011

The monetary authorities raised the most important interest rates by 0.50 percentage points. The key interest rate is now 0.50 percent. Negative interest rates have been abolished: banks no longer have to pay for parking excess money with the central bank. The euro central bank last raised interest rates in 2011. “With our measures, we are sending a clear message to companies, employees and investors: inflation will return to our target value of two percent in the medium term,” wrote the ECB head.

The measures have already had an impact on interest rates across the euro area. “This will help put the economy on a course that will take us back to stable prices,” she added. Most recently, consumer prices in the euro area shot up by 8.6 percent in June. This means that inflation is now more than four times higher than the central bank’s target.

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