Lagarde Says ECB Must Hike Even As Economy Weakens Into 2023
We expect to raise rates further to the levels needed to ensure that inflation returns to our 2% target, the ECB chief said.
(Bloomberg) -- European Central Bank President Christine Lagarde said borrowing costs will continue to rise even as economic activity slows down in the face of record inflation.
Addressing the European Parliament in Brussels, Lagarde said high uncertainty, tighter financial conditions and softening global demand are weighing on growth, which is “expected to continue weakening for the remainder of this year and the beginning of next.”
At the same time, “we are committed to bringing inflation down to our medium-term target, and we are determined to take the necessary measures to do so,” Lagarde said Monday. “We expect to raise rates further to the levels needed to ensure that inflation returns to our 2% medium-term target in a timely manner.”
Investors are looking for signs that the ECB’s appetite for jumbo interest-rate hikes may be waning after the most aggressive ramp-up in borrowing costs in its history, and as the 19-nation euro zone braces for a recession.
Some members of the 25-strong Governing Council have already called for a slower pace -- particularly as plans to start unwinding the roughly €5 trillion ($5.2 trillion) of bonds bought in recent crises come together.
Others, though, see little room to ease off, with inflation running at more than five times the 2% target. Dutch central bank chief Klaas Knot said earlier Monday that Europe should be ready for a “protracted period” in which the ECB returns inflation to the goal.
“How much further we need to go, and how fast we need to get there, will be based on our updated outlook, the persistence of the shocks, the reaction of wages and inflation expectations, and on our assessment of the transmission of our policy stance,” Lagarde said.
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