ECB boss Lagarde confirms continuation of interest rate hikes

ECB President Christine Lagarde

Lagarde expects another rate hike in March.

(Photo: AP)

Strasbourg, Frankfurt The European Central Bank (ECB) intends to stick to the rate hike course. Price pressures remain strong and core inflation, which excludes fluctuating prices for energy, food, alcohol and tobacco, is still high, ECB President Christine Lagarde said on Wednesday at the European Parliament in Strasbourg.

“Given underlying inflationary pressures, we plan to hike rates by a further 50 basis points at our next meeting in March, and we will then assess our monetary policy stance,” she said. The next interest rate meeting of the monetary authorities is scheduled for March 16th.

Although confidence is rising and energy prices have fallen, the ECB expects economic activity to remain weak in the near term, Lagarde said. The euro central bank has raised key interest rates five times in a row since the interest rate turnaround last July.

It is still unclear what will happen after the renewed interest rate hike of half a percentage point that has been announced for March.

Inflation in the euro area fell in January for the third month in a row thanks to a weakening surge in energy prices. Inflation fell to 8.5 percent from 9.2 percent in December.

ECB President Lagarde on current inflation: “It’s way too high, there’s no doubt about that”

But Lagarde made it clear to the MPs: “That’s far too high, there’s no doubt about it.” The medium-term inflation target of two percent is still a long way off. In addition, core inflation has recently remained at 5.2 percent, which is worrying the euro watchdogs.

Wages, meanwhile, have been rising faster, supported by robust employment momentum, Lagarde said. The main issue in wage negotiations is how wages can to some extent catch up with high inflation.

“At the moment we don’t see any clear signs that a self-sustaining wage-price spiral is emerging, but of course it could happen,” Lagarde said. And that would fuel inflation. The ECB is therefore following this carefully.

According to Lagarde, most measures of longer-term inflation expectations are currently around 2%. Still, these metrics should continue to be monitored, Lagarde noted. The ECB is paying close attention to long-term inflation expectations. If these get out of hand, the central bank’s fight against high inflation will become even more difficult.

More: ECB Governing Council member De Cos: Inflation could fall faster

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