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Financial Bulletin

Hawkish signal? ECB President: Should do more to curb Inflation

Release Time:2023-03-06

The president of the European Central Bank recently likened inflation to the devil.

ECB President Christine Lagarde told reporters on Sunday that the central bank was not seeking to "undermine the economy" by raising interest rates, but that underlying price pressures would remain "sticky in the near term," suggesting that further rate hikes were highly likely because "inflation is a monster that needs to be tackled head on."

Ms Lagarde said that while energy price growth had slowed, it was "too early to declare victory" in the battle to return inflation to the ECB's 2 per cent target. She predicted that headline inflation would continue to fall but that underlying price growth would remain "too high" in the short term, meaning it was "very, very likely" that the ECB would go ahead with a 0.5 percentage point rate rise at its next meeting on March 16.

She said:

"We are making progress but there is still work to be done... Right now, the economy is resilient, employment is strong and unemployment is at historically low levels."

Eurozone inflation has fallen for four months in a row after hitting a record 10.6 per cent in October due to slowing energy prices. However, headline inflation fell only to 8.5 per cent in February, lower than expected, while core inflation hit a new high of 5.6 per cent.

The European Central Bank has raised interest rates by three percentage points since last summer. The market now expects the ECB deposit rate to jump from 2.5 per cent to 4 per cent later this year, surpassing the 2001 peak of 3.75 per cent.

But at the same time, there is growing concern about the adverse effects of continuing to raise interest rates.

In countries with a high proportion of adjustable-rate mortgages, such as Spain, there are concerns that households may find it difficult to cope with higher borrowing costs.

Risk warning and disclaimer clause

The market is risky and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial situation or needs of individual users. Users should consider whether any opinion, opinion or conclusion in this article fits their particular situation. Invest accordingly at your own risk.

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