ECB: High inflation hurts spending and production

Lagarde made assessments at the press conference held in Frankfurt after the historic decision to raise interest rates by the Governing Council of the ECB.

Recalling that the ECB’s Governing Council raised the bank’s three main official interest rates by 75 basis points today, Lagarde said this was the third largest consecutive increase in official interest rates.

Lagarde noted that the ECB’s rate hike cycle is not over and that it will continue to raise interest rates to meet its medium-term inflation target.

“We expect to raise interest rates further to ensure that inflation returns to our medium-term target of 2 percent in a timely manner.” Lagarde said future interest rate decisions will remain data-driven and follow a meeting-based approach.

While emphasizing that inflation remains very high and will remain above the ECB’s target for a long time, Lagarde said that the main sources of high inflation are energy and food prices, supply bottlenecks and the recovery of demand after Kovid-19.

Stating that economic activity in the Eurozone slowed in the third quarter of the year and is expected to weaken further in the last quarter and early next year, Lagarde said: “High inflation continues to reduce spending and output, reducing the real income of the people and the increase in the costs of the companies”. he made the appraisal of it.

Stating that supply bottlenecks have been eased, Lagarde recalled that general price pressure is being felt in more and more sectors with each passing day, stressing that the war between Russia and Ukraine is a major risk for the economy in the short term. Lagarde identified worsening consumer confidence and high food and energy prices as risks of driving inflation higher.

Lagarde noted that loans to companies in the Eurozone remain “stable”, but the demand for loans has fallen.

“THE ECB NEEDS TO FIGHT AGAINST INFLATION”

Asked about a possible reduction in the ECB’s balance sheet, Lagarde said “fundamental principles” will be discussed and decided at the ECB’s Governing Council meeting in December.

Lagarde said the ECB will publish its new economic and inflation forecasts at its December meeting, adding that “most of the downside assumptions in the projections have not been met.”

Against assessments by European leaders, especially Italian Prime Minister Giorgia Meloni, that urgent interest rate hikes to curb inflation hurt businesses and households, Lagarde said: “The ECB must fight inflation “. he answered in the form.

“We must do our duty, the central bank has a mandate to stabilize the price and it must do so by all means,” Lagarde said. Frankly, that doesn’t mean we neglect recession risk.” he made the comment about it.

THE ECB INCREASES POLITICAL INTERESTS TO THE HIGHEST LEVEL

The ECB today raised three key policy rates by 75 basis points to their highest level since 2009.

The bank increased the refinancing rate to 2%, the deposit rate to 1.50% and the marginal funding rate to 2.25%.

Thus, the ECB made the second highest rate hike since the introduction of the European Common Currency in 1999. The bank had raised its three main policy rates by 75 basis points in September.

It should be noted that the ECB raised interest rates to the highest level since 2009, despite the expectation of a recession in the economy.

In the Eurozone, annual inflation reached 9.9 percent in September, the highest level on record, due to rising energy prices. (AA)