European Central Bank President Christine Lagarde said on Thursday that the looming recession will not be enough to stem soaring prices, as the institute is rapidly raising rates.
The scenario of a modest recession in the euro zone is possible at the turn of 2023 but we do not believe that this recession will be sufficient to tame inflation, declared Christine Lagarde during a forum organized in Riga by the Bank of Lithuania.
After having raised its rates by a total of 2.0% since July, coming from a historically low level, the monetary institute is determined to continue this cycle of increases in order to eventually bring inflation back to its target of 2%, against more than currently 10%.
The central banker at the same time warned of the risks linked to the rapid rise in rates, after the American Central Reserve (Fed) raised its rates on Wednesday to their highest level for nearly 15 years and thinks of continuing to increase them.
We need to be mindful of each other and we need to be mindful of potential fallout and backlash from rate moves, as I think the Fed is also aware of, the former IMF chief warned.
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When calibrating decisions, we must be very careful not to amplify the risk of a prolonged recession or to cause market dislocation, warned Fabio Panetta, member of the ECB’s executive board, during a conference Frankfurt on the money market.
A larger-than-expected rate hike could increase volatility and have a stronger impact in the current high-debt environment after a decade of ultra-low rates and abundant liquidity, the dove-listed central banker added. a flexible monetary policy, now in the minority within the ECB.