Lagarde: ECB Not Yet Finished Raising Interest Rates

Lagarde: ECB Not Yet Finished Raising Interest Rates

The European Central Bank (ECB) has not yet finished raising interest rates. Central Bank President Christine Lagarde said so in an explanation of the interest rate hike announced by the ECB on Thursday.

The Frenchwoman did not want to anticipate how often the bank would do that and whether they are significant steps again. “We’re not there yet, but we’ll decide what to do per meeting. So we are moving away from looking ahead to future steps because it is not helpful now.”

According to Lagarde, despite the steps taken by the central bank, inflation will remain too high for a long time. This is mainly due to the high energy prices, but the food is also becoming more expensive to grow, so it will quickly become more expensive.

On the other hand, the supply problems that arose in the corona crisis and were exacerbated by the war in Ukraine are now easing somewhat. This is partly because demand is declining due to a slower-growing economy and high inflation.

The ECB’s interest rate hikes are aimed at making borrowing more expensive. That should reduce the amount of money in the economy. A unique arrangement that allowed banks to borrow money very cheaply is now also being adjusted. This also means that less money should be available to lend. The ECB had rigged that arrangement to “ensure that banks continued to lend a lot in a difficult time,” Lagarde referred to the corona time in which the arrangement was devised.

Only at the next policy meeting in mid-December will the ECB decide how quickly the bank’s portfolio of corporate and government bonds will be reduced. In recent years, when interest rates were still low, the central bank bought them up in very large quantities.

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