Short-term growth prospects in the eurozone are low and inflation is on the rise, European Central Bank (ECB) President Christine Lagarde said on Thursday.
A “long-term war in Ukraine remains a major risk” to growth, Lagarde stressed at a news conference after the ECB’s monetary policy meeting, warning that “the probability of a recession looms closer on the horizon.” .
Risks to the inflation outlook are “rising”, Lagarde added, after year-on-year inflation in September approached 10% in the euro zone.
The president of the ECB called on the governments of the eurozone to reduce public debt.
“Governments must adopt fiscal policies that demonstrate their determination to progressively reduce high rates of public debt,” he said.
Lagarde indicated that, at its December meeting, the ECB will make a decision on reducing its balance sheet, which has increased significantly with the asset purchase programs adopted in recent years to keep interest rates low and support the economy. .
At the end of Thursday’s meeting, the ECB announced a further 75 basis point hike in interest rates to curb record inflation in the euro zone.
With this rise, the third in a row and the second of this magnitude, the ECB’s main financing rate stands at 2%.
The “journey” of monetary normalization is not over yet and Lagarde warned that “there is still a long way to go” and there will be further increases to lower prices.
Price developments will be decisive and decisions will be made meeting by meeting, he added.
The institution will also reduce the benefits of loans granted in recent years to banks under exceptional conditions to support the economy.
In a statement, the ECB explained that it decided to modify the conditions of the third series of longer-term financing operations, adjusting the interest rates applicable from November 23 and also decided “to offer banks additional early repayment dates voluntary”.
“During a pandemic, this instrument was crucial in countering downside risks to price stability. Currently, due to the unexpected and extraordinary increase in inflation, this instrument needs to be recalibrated to ensure its compatibility with the more general process of monetary policy normalization and to reinforce the transmission of increases in key rates to bank financing conditions”, explained the institution.
Source: TSF
