Lagarde: Expect ECB to raise rates during ‘next many meetings’

Lagarde: Expect ECB to raise rates during ‘next many meetings’

By Scott Kanosky – The European Central Bank is expected to rise further during its “number of upcoming meetings” in an effort to curb high inflation, according to European Central Bank President Christine Lagarde.

Speaking at a hearing of the European Parliament’s Economic and Monetary Affairs Committee, Lagarde said these increases would help dampen demand, which in theory would cool consumer price growth.

Lagarde added that higher borrowing costs would “protect against the risks of a continuing upward shift in inflation expectations.” The European Central Bank’s baseline estimates of annual inflation in the eurozone have been revised significantly, with the central bank now seeing the figure at 8.1% in 2022, 5.5% in 2023, and 2.3% in 2024.

It rose to an all-time high of 9.1% year-on-year in August, buoyed in particular by higher energy prices caused by Russia’s decision to clamp down on key gas exports in response to Western sanctions in the wake of the outbreak of war in Ukraine. Economists estimate that prices in the region will expand at a new record rate of 9.7% this month.

“Price pressures are spreading across more sectors, in part due to the impact of higher energy costs on the entire economy,” Lagarde told lawmakers in Brussels.

“The risks to inflation expectations are primarily to the upside, mainly reflecting the potential for further major disruptions to energy supplies.”

Lagarde said the depreciation of the euro, which has fallen below par with the dollar as investors fear about the future of the euro zone economy, has also added to inflationary pressures.

Meanwhile, Lagarde predicted that wage growth, while contained for now, would eventually accelerate to “compensate” for higher inflation.

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It added that economic growth in the money supply is expected to slow “significantly” in the coming quarters as inflation, combined with the subsequent series of interest rate increases by central banks around the world, prompt consumers to rein in spending. The post-pandemic recovery was also seen in the services sector “losing momentum”.

Finally, uncertainty about the future of the eurozone remains high, Lagarde said, as reflected in a decline in household and business confidence. Earlier on Monday, a monthly survey showed that business in Germany – Europe’s largest economy – had fallen to its lowest level since the early days of the pandemic.

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