In a speech in Germany, Lagarde said the bank must continue to bring borrowing costs up to “sufficiently restrictive levels,” reiterating a prior statement that “inflation is too high and it is set to remain so for too long.”
Although she conceded that the spike in rates is leading to a tightening in bank lending conditions, she added that it is not yet certain “how much stronger the transmission of ECB policy will be.” For that reason, Lagarde argued that the ECB’s unprecedented hiking campaign must go on until policymakers are confident that inflation is on track to return to its 2% medium-term target.
Some observers have predicted that the ECB could raise its deposit rate to as high as 3.75% by July, equaling an all-time high reached in 2001.
The comments come after preliminary data showed that the Eurozone’s consumer price index grew by less than expected on annual basis in May. The core reading, which strips out volatile items like food and energy and is closely eyed by the ECB, also rose at a slower pace than many economists had predicted.
At its last meeting, when rates were raised by a quarter percentage point, the ECB projected that annual average headline inflation would not move back down to 2% until the second half of 2025. However, Lagarde flagged that the bank cannot yet say if it is “satisfied” with this outlook.
Source: Economy - investing.com
