Lagarde confirms that rate hikes will continue to tackle inflation
The end of interest rate hikes has not yet come. This has been confirmed by the president of the European Central Bank (ECB), Christine Lagarde, who has assured that the institution expects to continue raising rates at the next monetary policy meetings. The objective, to reach the medium-term goal of 2% in a timely manner.
“Since July we have increased rates by 200 basis points, the largest increase in the history of the euro. But we are not done yet”, Lagarde confirmed in an interview published by the European Central Bank. In its last monetary policy meeting, the Governing Council of the ECB decided to raise interest rates again by 75 basis points, so that the interest rate for its refinancing operations will be 2%, while the deposit rate will reach 1.50% and the loan facility, 2.25%.
The president has insisted this Tuesday on the message that she offered last Thursday to undertake the new rate hikes “meeting by meeting” and evaluating in each of them the evolution in the macroeconomic and inflation perspectives, among other factors.
Lagarde confirms more rate hikes
In response to critical voices for this roadmap contractionary in monetary policy at a time of possible recession in the euro zone, the highest representative of the monetary institution has recognized that the probability that the Old Continent will enter in recession “has increased” and that uncertainty “remains high”.
That is why, defends the president of the ECB, that the issuing institute has to do its job and concentrate on its mandate. “Our mandate is price stabilityand we have to comply using all the tools available to us, choosing those that are most appropriate and efficient”, explained Lagarde.
Regarding the specific level that rates will reach, Lagarde has stressed that the bank’s objective is to converge inflation towards its goal of 2% in the medium term, a clear objective for which there is still a long way to go. “The destination is clear, and we have not yet arrived there. We will have more rate increases in the future,” Lagarde has indicated, who, however, has not offered concrete data, given the environment current “highly uncertain”.
Regarding the risks for the real estate market in light of the current environment, Christine Lagarde acknowledged that the sharp increase in prices is having adverse effects on household disposable income, especially in low-income households. At the same time, it has indicated that employment levels are “remarkably strong” in the euro environment, which has helped shore up household finances so far, along with savings built up during the pandemic and government support.
However, households may be vulnerable to rising debt service costs, especially in countries where residential property is overvalued, debt levels are high and a larger part of household debt is subject to variable interest rates.
The Frenchwoman has pointed out here that these risks “are best addressed through country-specific policies. “We will provide a more detailed picture later this month when we publish our biannual Financial Stability Review,” he added.
In banking matters and on the impact of a possible increase in the number of overdue loans, Lagarde explained that the ECB supervisors have initiated a review of the provisioning practices of the most important banks in the euro zone to ensure that they are prepared. However, he has explained that the direct impact of the war on eurozone banks has so far been limited, although the environment for business and the economy as a whole has changed.
As to whether this crisis is similar to the one in 2008, Lagarde pointed out that banks are now in a better position, largely because the ECB now has joint banking supervision across the euro area. However, he has insisted: “We all need to be vigilant and ready to respond to whatever may happen.”
Ultimately, the ECB President has recalled forecasts: We published our latest round of projections in September. Baseline projections showed inflation at 8.1% this year, 5.5% next year and 2.3% in 2024.. Growth is expected to slow to 0.9% next year and hit 1.9% in 2024.
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