ECB must keep interest rates climbing to fight inflation, officials say

The European Central Bank (ECB) needs to keep raising interest rates, prioritizing the fight against high inflation, even if this comes at a cost to growth, the institution’s monetary policymakers said on Friday (9).

The ECB raised interest rates by 75 basis points on Thursday, just weeks after a 50-basis-point hike, and promised several more measures in the coming months as eurozone inflation hit a nearly half-century high. and threatens to entrench itself in the economy.

“Inflation remains unacceptably high,” said Peter Kazimir, governor of Slovakia’s central bank.

“The priority now is to vigorously continue the normalization of monetary policy.”

Echoing his words, Dutch central bank governor Klaas Knot said slowing growth is a necessary side effect of fighting inflation.

“We expect inflation to continue rising in the coming months, which means we have only one problem on our plate: inflation,” Knot said in an interview with Dutch radio station BNR.

“And that will mean that we will have to slow economic growth at least a little bit to bring down inflation.”

While the ECB has projected stagnant growth over the winter months, ECB President Christine Lagarde acknowledged that many of the downside risks to this outlook have already materialised, particularly the loss of access to Russian gas, increasing the risk of a full-blown recession.

Lagarde said it will take less than five meetings, including Thursday’s meeting, for the ECB to reach what she calls a neutral rate, which neither stimulates nor slows growth.

This timeline suggests increases at each meeting through early next year, in line with market expectations, which see the cycle peak next spring.

The ECB described the July-September moves as “advance” and Lagarde said the 75 basis point increase was not the norm, although she also declined to rule out a similar step in October.