Hot Development: Announcement of Interest Rate Increase from European Central Bank (ECB)!

European Central Bank President Christine Lagarde said on Tuesday that the ECB may need to raise interest rates to a level that restrains economic growth to cool demand and combat unacceptably high inflation.

The ECB is raising interest rates at a record pace, but inflation is still rising, and even long-term prospects, a major focus for politicians, are starting to rise above the bank’s 2% inflation target.

European Central Bank President Announces That He Will Continue To Increase Rates To Reach 2% Inflation Rate

Part of Lagarde’s speech was quoted in a tweet posted on the AMB’s official Twitter account:

“We are determined to achieve price stability and expect to raise interest rates further to achieve 2% inflation,” Lagarde said. As the economic environment improves, we must compromise at a rate that will allow inflation to return to our target permanently.”

We are determined to deliver price stability, and expect to raise interest rates further to achieve 2% inflation, says President @Lagarde. We must settle at a rate that ensures inflation returns durably to our target, as the economic environment evolves https://t.co/d5HvwVEiR0 pic.twitter.com/mCXxS1yk1f

— European Central Bank (@ecb) September 20, 2022

“If there is evidence that high inflation puts inflation expectations at risk, then the policy rate, consistent with our target, will be in the constraint zone,” Lagarde said.

He added that if the current supply shock from expensive energy lowers the potential of the EU bloc, the European Central Bank will also need to take action to curb demand.

Politicians have talked about halting rate hikes when the ECB reaches a “neutral” level that neither stimulates nor hinders growth, but a growing number of interest rate regulators now see the risk of higher rates.

The nominal neutral level is somewhere between 1.5% and 2%, which is well above the ECB’s deposit rate of 0.75%.

Lagarde said that while medium-term prospects are “relatively” well fixed in line with the target, it would not be “wise” to accept this as definitive.

Lagarde noted that consumers’ inflation expectations are rising rapidly and that the Eurozone has moved from a low inflation environment to an extremely high inflation environment, both of which pose risks for long-term expectations.

Lagarde also warned of the danger that high price growth could trigger a wage-price spiral that would plunge inflation into a hard-to-break cycle.

However, the President of the ECB Bitcoin He did not give any hint about the interest rate hike in October that will affect the economy, and only repeated that the next steps of the ECB will be decided by the meeting.

*Not investment advice.