Frankfurt (Reuters) – The European Central Bank (ECB) has so far left open the question of the final level of interest rates in the tightening course it has initiated.
“Within the Governing Council, we have no estimates of the final interest rate, the maximum level that interest rates could rise to,” ECB Vice President Luis de Guindos said in an interview with Portuguese weekly Expresso published on Friday. This also applies to the neutral interest rate – the interest rate that balances the economy at full employment with stable inflation. “We haven’t decided anything,” he added. Further rate hikes could come in the coming months.
The slowdown in the economy will not be enough to curb inflation, said the deputy ECB president Christine Lagarde. “We have to normalize the monetary policy continue. Everyone needs to understand that.” The forces behind the economic slowdown are very similar to the forces driving inflation. The slowdown in the economy will reduce demand pressures, which in turn will lower inflation from a monetary policy point of view so that inflation expectations stay on track and no further negative effects occur.
The ECB is aiming for two percent inflation as the ideal value for the economy in the euro zone. In August, however, inflation was 9.1 percent, fueled by the surge in energy prices in the wake of the Ukraine war. The central bank therefore increased interest rates last week by an unusually strong 0.75 percentage points. It was the sharpest interest rate hike since the introduction of euro cash in 2002. ECB President Lagarde had promised further interest rate hikes.
(Report by Frank Siebelt, edited by Elke Ahlswede. If you have any questions, please contact our editorial team at [email protected] (for politics and the economy) or [email protected] (for companies and markets).)