HomeEconomyECB confirms interest rate hike will continue to converge to 2%

ECB confirms interest rate hike will continue to converge to 2%

European Central Bank (ECB) President Christine Lagarde confirmed on Tuesday that the rise in interest rates has not yet ended and will continue at the next monetary policy meetings, in order to reach the medium-term target of 2% inflation.

“Since July, we have raised interest rates by 200 basis points, the biggest increase in the history of the euro. But we are not done yet,” Christine Lagarde said in an interview published by the ECB.

At its last monetary policy meeting last Thursday, the Governing Council decided to raise rates again by 75 basis points, bringing the key rate to 2%, while the deposit rate rises to 1.50% and lending to 2.25%.

Lagarde today insisted on the message she had already conveyed on Thursday, to tackle new rate hikes “meeting by meeting” and, in each of them, assess the evolution of the macroeconomic and inflationary perspectives, among other factors.

Responding to the critical voices of this monetary policy strategy at a time of potential recession in the eurozone, the ECB president acknowledged that the likelihood of the Old Continent slipping into recession has “increased” and uncertainty “remains high”. .

He argued that this is why the central bank needs to do its job and focus on its mandate. “Our mandate is price stability and we have to fulfill it with all the tools at our disposal and choose the ones that are most suitable and efficient,” explains Lagarde.

As for the specific level that the rates will reach, Lagarde emphasized that the bank’s objective is to converge inflation towards a target of 2% over the medium term, a clear target for which there is still a long way to go.

“The destination is clear and we are not there yet. We will have more rate hikes in the future,” said Lagarde, but without providing more concrete data, given the current “highly uncertain” environment.

Turning to the risks of the current situation for the real estate market, Christine Lagarde acknowledged that the sharp price increases are adversely affecting household disposable income, especially for low-income households. At the same time, he noted that employment in the eurozone is “remarkably solid”, which has so far helped bolster household finances, along with the savings built up during the pandemic and public support.

However, it acknowledged that households may be vulnerable to rising debt service costs, especially in countries where housing is overvalued, debt levels are high and a higher proportion of household debt is subject to floating interest rates.

In this regard, he believed that these risks “are best addressed through country-specific policies”. “We’ll get a picture later this month when we publish our semi-annual Financial Stability Review,” he added.

In banking and on the impact of a potential increase in non-performing loans, Lagarde explained that ECB regulators have begun a review of the provisioning practices of the major eurozone banks to ensure they are prepared.

However, he said the direct impact of the war on banks in the eurozone has been limited so far, although the environment for businesses and the economy as a whole has changed.

As to whether this crisis is comparable to that of 2008, Lagarde noted that banks are currently in a better position, mainly because the ECB now has joint banking supervision across the euro area.

Still, he stressed, “We all need to be alert and ready to respond to whatever happens.”

Finally, the ECB president recalled the central bank’s forecasts: “We published our last round of projections in September. The baseline projections point to an inflation rate of 8.1% this year, 5.5% next year and 2. 3% in 2024. Growth is expected to slow to 0.9% next year and reach 1.9% in 2024,” he explained.

Author: DN/Lusa

Source: DN

Stay Connected
16,985FansLike
2,458FollowersFollow
61,453SubscribersSubscribe
Must Read
Related News

LEAVE A REPLY

Please enter your comment!
Please enter your name here