FRANKFURT, Germany (AP) – Policymakers will seek to raise interest rates in early July to mitigate rising inflation, the European Central Bank Governor said on Monday.
In a blog post on the website of a German bank in Frankfurt, President Christine Lagarde said she expects the economy-supporting asset purchases to end “very early in the third quarter”.
This will allow us to raise the bar in line with our expectations at our July meeting.” “Based on the current outlook, we are likely to be stuck at negative interest rates at the end of the third quarter.”
The central banks of countries using the 19 euro have caught up with others around the world in raising interest rates to combat inflation. Consumer prices rose as countries recovered from the COVID-19 pandemic, and then worsened as Russia’s war with Ukraine pushed energy and food prices higher and further tightened the supply chain.
In the euro area, consumer prices rose 7.4% last month compared to last year. Energy prices increased inflation in Europe, which is heavily dependent on Russia’s oil and gas. This has led to everything from more expensive electricity bills and market trips to the halting of public works projects in Italy.
The Bank of England has increased its core rate four times since December, and inflation hit a four-year high of 9% last month. The US Federal Reserve raised its key rate this month to ease inflation approaching 8.3%, a 40-year high, and expects further increases in the coming months.
The Fed acted more aggressively than the ECB, in part because its leaders were concerned that US inflation would spill over into the economy, and European inflation continued to be driven largely by higher energy and food prices. It was caused by the Russian invasion of Ukraine. Higher rates may do less to curb inflation caused by these trends.
In Europe, Lagarde said it was unclear whether there would be further rate hikes as “supply shocks trigger inflation and slow growth in the short term”, and so the bank should stay close to changing economic conditions.
The European Union executive commission cut its economic growth forecasts for the 27-nation bloc from 4% to 2.7% this year due to the effects of the war in Ukraine.
Lagarde also promised that the ECB would take “all necessary steps” to meet the central bank’s medium-term inflation target of 2%.
By acquiring assets worth hundreds of billions of euros in financial markets, the Bank keeps interest rates at or below zero and keeps borrowing costs low in the market.
Source: Breitbart
