According to the chairman of the European Central Bank, the bank will gradually raise interest rates in July and September to counteract rising consumer prices, but it will keep its options open in case inflation rises more quickly than anticipated.
Portugal’s Sintra (AP) — According to the chairman of the European Central Bank, the bank will gradually raise interest rates in July and September to counteract rising consumer prices, but it will keep its options open in case inflation rises more quickly than anticipated.
As officials aim to control inflation, which is currently running at a record 8.1% in the 19 nations using the euro, bank president Christine Lagarde used harsh language in her statement to kick off an ECB meeting on central banking in Sintra, Portugal. Lagarde stated that the bank is employing the dual method to be ready to respond to economic uncertainties as new inflation statistics are scheduled to be released on Friday.
Energy and food prices are rising at rates higher than they were in the 1970s and 1980s as a result of Russia’s war in Ukraine, and “given its energy dependence, the euro area is experiencing these shocks intensely, “said Lagarde.
“How lasting this inflation is going to also depend on the extent and complexity of these shocks, “She spoke.
The bank has already stated that it will stop the asset purchases that helped the economy on Friday and then, at its meeting next month, raise interest rates for the first time in 11 years. In September, rates will also be increased, but the bank is leaving the door open to a larger increase than the quarter-point increase in July, just in case inflation continues to soar.
The ECB has “markedly lowered our expectation for growth in the next two years,” according to Lagarde, to prevent further harm to economic growth by acting too forcefully.
However, “there are certain situations when gradualism would not be suitable. For instance, she stated, “we would need to withdraw accommodation more quickly to eliminate the possibility of a self-fulfilling spiral if greater inflation threatened to de-anchor inflation expectations or indicators of a more permanent loss of economic potential.”
The U.S. Federal Reserve and other central banks across the world have responded to runaway inflation more quickly than the ECB. However, as they raise borrowing costs, they pose a risk of triggering a recession, with Fed Chair Jerome Powell admitting last week that “it’s a possibility.”
The Federal Reserve has increased interest rates three times this year, including once by three-quarters of a point, which was the highest increase in nearly three decades. Additional increases are likely. Since December, the Bank of England has increased interest rates five times.
Lagarde will participate in a policy panel discussion with Powell and Andrew Bailey from the Bank of England on Wednesday at the ECB event.
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