June 01, 2023 (MLN): The European Central Bank (ECB) needs to continue hiking the interest rates as is not sufficiently confident that inflation is on track to return to the target in a timely manner, said Christine Lagarde, President of the ECB, at Deutscher Sparkassentag 2023.

Inflation remains too high and it is set to remain so for too long, and the ECB is determined to bring it back down to our 2% medium-term target in a timely manner, she added

She expressed that the ECB has hiked rates at the fastest pace ever, and has made clear that they still have ground to cover to bring interest rates to sufficiently restrictive levels.

These hikes are already feeding forcefully into bank lending conditions, including here in Germany.

Since the outset of the pandemic, the euro area has been hit by a series of sudden, overlapping and self-reinforcing shocks which, together, have sent inflation soaring.

The ECB entered this period with a highly accommodative policy that had been geared to fighting a decade of too-low inflation and the deflationary risks created by lockdowns.

The ECB started rate hikes in July 2022 and, since then, have raised rates by 375 basis points in less than a year, from -0.5% to 3.25% today.

EU inflation outlook

In March, according to the ECB’s projections, annual average headline inflation was estimated to be 2.1% in 2025, which is still slightly above the target.

And it did not see YoY inflation rates returning to 2% until the second half of 2025.

At our last meeting in May, we judged that the incoming data broadly supported those projections, Christine added.

She expressed concerns by stating that on the basis of these past projections, we cannot yet say that we are satisfied with the inflation outlook. But we will have a new set of projections at our meeting on June 15, and these will give us an updated picture incorporating the additional policy tightening since then.

Copyright Mettis Link News

Posted on: 2023-06-01T15:04:22+05:00