Christine Lagarde, President of the European Central Bank (ECB), has indicated that eurozone interest rates may need to reach a new record as the region continues to grapple with persistent 7% inflation.
Lagarde emphasized that the ECB’s Governing Council is not stopping its series of interest rate hikes, which have now reached their highest point since October 2008. She suggested that interest rates may have to rise to the record 3.75% level last seen in 2000, stating that monetary policy must be “sufficiently restrictive” to reduce inflation to the ECB’s 2% target, a goal that the eurozone has yet to achieve.
The ECB has recently slowed the rate of its interest rate increases, raising its deposit rate by 0.25 percentage points to 3.25%. This move mirrors the decision made by the US Federal Reserve on Wednesday, which marked the 10th consecutive rate hike in the United States.
The more modest eurozone increase comes as evidence suggests that the ECB’s efforts are starting to have an impact by making mortgages and business loans more difficult to obtain. Nevertheless, Lagarde cautioned that the “inflation outlook continues to be too high for too long.”
The ECB’s quarter-point rise comes in response to evidence that its measures are taking effect, as mortgages and business loans become more challenging to secure.
This decision was made a day after the Fed approved a similar quarter-point increase and hinted at a potential end to its rate-hiking cycle.
However, the central bank for the 20 eurozone nations began its rate hikes later than the Fed, and it may need to continue its efforts even as economic growth decelerates and instability in US banks raises concerns of further financial turmoil.
Market analysts are eagerly anticipating ECB President Christine Lagarde’s news conference for insight into the bank’s upcoming actions, particularly in light of the persistent 7% inflation rate.
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