Lagarde says interest rates will stay as high as it takes for as long as it takes

European Central Bank (ECB) president Christine Lagarde said the authority will set borrowing costs as high as needed and leave them there for as long as it takes to bring inflation back to its goal.

Describing an “era of uncertainty,” Ms Lagarde said it’s important that central banks provide an anchor for the economy and ensure price stability in line with their respective mandates.

“In the current environment, this means – for the ECB – setting interest rates at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our 2 per cent medium-term target,” Ms Lagarde said on Friday in a speech in Jackson Hole, Wyoming.

The comments come at a pivotal time for the ECB and the 20-nation euro zone. Officials in Frankfurt are deciding whether to add one last hike to their unprecedented flurry of interest-rate increases, just as data signal that the economy may be succumbing to the recession it’s narrowly managed to dodge so far.

Earlier, ECB Governing Council member Martins Kazaks said it’s better to err on the side of tighter monetary policy than allow the risk of re-accelerating inflation.

“The risks are now really on both sides – doing too little or doing too much, but I would still err on the side of raising rates,” Mr Kazaks told Bloomberg TV at Jackson Hole on Friday. “We can always cut. If, however, we stopped too early, then of course later on it may require much larger interventions.”

He added that even if the central bank paused, it wouldn’t mean they couldn’t raise rates in the future. Mr Kazaks cited strong core inflation and a healthy labour market with increasing wage gains that still risk pressuring up euro-area inflation.

“I wouldn’t rush anything. Let’s look at the data. Let’s see what happens. And let’s return inflation to the 2 per cent target sooner than the end of 2025, which is currently the end of the forecast horizon,” Mr Kazaks said.

Bundesbank president Joachim Nagel said on Thursday that he thinks it’s too early to consider a break with inflation north of 5 per cent, adding that his decision will hinge on fresh data. Croatian official Boris Vujcic also said more facts are needed to determine whether rates have risen far enough already.

Portuguese central-bank chief Mario Centeno struck a more moderate tone, urging his colleagues to move cautiously as downside risks to the economy are becoming a reality. – Bloomberg