The head of the ECB has to fight against the high inflation rates.
(Photo: IMAGO/Hannelore Förster)
Frankfurt Despite fears of recession in the euro area, the ECB is determined to combat high inflation by continuing to keep interest rates tight. “We will not allow the current phase of high inflation to be reflected in the behavior of economic players and grow into a permanent inflation problem,” emphasized ECB President Christine Lagarde on Tuesday evening in Frankfurt.
She pointed out that the hike in key interest rates by a total of 125 basis points in the past two meetings was “the fastest interest rate change in the history of the ECB”. This clearly shows that the central bank is determined to return inflation to the ECB’s medium-term target of 2.0 percent in a timely manner.
The appropriate pace of future increases will be decided “from meeting to meeting”. A crucial question will be how persistently the shocks resulting from the corona and energy crises are weighing on inflation expectations and potential output.
The head of the ECB signaled that the key interest rate could also rise to a level that would slow down the economy. This applies in the event that there should be indications that the public’s confidence in the achievement of the medium-term inflation target is in danger of being lost: “If there are indications that the high inflation could lead to an unanchoring of inflation expectations, that would be with our Target compatible key interest rate in the restrictive area.”
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The European Central Bank (ECB) heralded the turnaround in interest rates in July and followed this up at the beginning of the month with a significant tightening of its monetary policy.
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It is reacting to the high inflation, which reached 9.1 percent in August. After the most recent increase of 0.75 percentage points, the key interest rate is now at 1.25 percent. The stock exchanges are expecting it to rise to over 2.5 percent by next spring.
More: The week of the big jumps in interest rates