Lagarde raises prospect of rate hikes beyond neutral By Reuters

¬©Reuters. FILE PHOTO: President of European Central Bank Christine Lagarde addresses a news conference following the meeting of the Governing Council’s monetary in Frankfurt, Germany March 10, 2022. Daniel Roland/Pool via REUTERS

FRANKFURT, Sept 20 (Reuters) – The European Central Bank may need to raise interest rates to a level that restrains economic growth to combat unacceptably high inflation, ECB President Christine Lagarde said on Tuesday.

“If there was evidence that high inflation risks unpinning inflation expectations, then the policy rate that is consistent with our target would be in tightening territory,” he said in a speech.

Monetary authorities have talked about pausing rate hikes once the ECB reaches a so-called “neutral” level, which neither stimulates nor slows growth, but a growing number of rate-setters now see the risk that the cost of credit has to be higher.

Inflation is already above 9% and may yet accelerate as longer-term expectations, a benchmark for rates, now move above the ECB’s 2% target.

(Reorte de Balazs Koranyi, Edited in Spanish by Manuel Farías)

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