In October, the European Central Bank raised interest rates sharply for the third time in a row. However, the goal has not yet been reached, says ECB President Lagarde and announces further increases. However, there are concerns among economists that the monetary authority is acting rashly.
After the third interest rate hike in a row, ECB President Christine Lagarde does not see the central bank as having reached its goal in the fight against high inflation. "We are aiming for the interest rate at which the medium-term inflation target of two percent can be reached. The target is clear and we are not there yet. We will continue to raise interest rates in the future," Lagarde told the Latvian news portal Delfi in one of Interview published by the European Central Bank.
For months, the rise in energy and food prices has fueled inflation. In October, consumer prices in the euro area were 10.7 percent above the level of the same month last year - a record value. The ECB is aiming for medium-term price stability with two percent inflation for the currency area.
In order to curb inflation, the ECB decided last week to raise interest rates sharply for the third time in a row. The key interest rate at which commercial banks can borrow fresh money from the central bank is 2.0 percent. Higher interest rates make loans more expensive. This can slow down demand and thus counteract high inflation rates.
"We are increasingly finding that these higher energy costs are impacting more and more areas of the economy," Lagarde said in the interview. "The longer inflation remains at such high levels, the greater the risk that it will spread to the economy as a whole."
Because the economy is already suffering from supply bottlenecks and the consequences of the Ukraine war, for example on the energy market, there are also concerns among economists that the ECB could normalize its previously ultra-loose monetary policy too quickly and reacted too late to inflation. "It is true that the likelihood of a recession has increased and uncertainty remains high," Lagarde said. Ultimately, however, persistently high inflation rates are rather harmful for society because they make everyone poorer: "Stable prices form the basis for a well-functioning economy from which everyone benefits," said the ECB President.
