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Lagarde sees more ECB interest rate hikes after ‘frontloading’

Europe not seeing demand-led inflation present in US

The president of the European Central Bank Christine Lagarde. Photograph: Daniel Roland/AFP via Getty Images

Zoe Schneeweiss
Tue Sep 20 2022 - 19:43

European Central Bank president Christine Lagarde said borrowing costs will rise more in the months ahead even after officials frontloaded initial moves in what she called “the fastest change in rates in our history”.

“We have taken major steps along the path of normalising our monetary policy, frontloading our rate increases,” Ms Lagarde said in a speech on Tuesday evening in Frankfurt. “We expect to raise interest rates further over the next several meetings.

ECB officials are hotly debating their next steps after following the Federal Reserve’s example with a three-quarter-point rate hike this month. While they agree that further action is needed to wrest control of record inflation, there’s some discord over what level of aggression is appropriate as soaring energy costs tip Europe toward a recession.

Speaking earlier Tuesday, Estonian central bank chief Madis Muller urged “sufficiently robust and decisive action” from the ECB, saying rates remain far from levels that would restrict economic expansion. ECB vice-president Luis de Guindos said on Monday that a slowdown in growth isn’t sufficient on its own to curb prices.

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Ms Lagarde reiterated that the ECB will take decisions on a meeting-by-meeting basis, and that any action will hinge on incoming economic data. “Where rates ultimately settle, and the size of the steps that we move in, will depend on how the inflation outlook evolves as we proceed,” she said.

Highlighting that Europe is not experiencing the demand-led inflation seen in the US, Ms Lagarde said the risk of a wage-price spiral is so far contained. “At present inflation expectations remain relatively well anchored across a range of measures,” she said. Still, “it would be unwise to take this for granted”. – Bloomberg

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