ECB chief to unleash first rate hike since 2011 in battle with inflation
THE head of the European Central Bank warned inflation in the eurozone was ‘undesirably high’ and pledged to act in ‘a determined and sustained manner’ to bring it back under control.
As the Frankfurt-based institution hardened its message on the economy, Christine Lagarde outlined plans to raise interest rates in the single currency bloc next month for the first time since 2011.
She suggested rates would rise by 0.25 percentage points in July and then by 0.5 percentage points in September unless there was a marked improvement in the outlook for inflation. Inflation in the eurozone is running at a record high of 8.1pc but interest rates remain at minus 0.5pc despite a series of hikes elsewhere in the world, including the UK and US.
Speaking in Portugal yesterday, Lagarde said: ‘Inflation in the euro area is undesirably high and it is projected to stay that way for some time to come. This is a great challenge for our monetary policy.’
Warning that ‘inflation pressures are broadening and intensifying’, she said the ECB would act ‘in a determined and sustained manner’ to bring inflation down.
Analysts expect official figures on Friday to show inflation in the eurozone hit 8.3pc in June. As the cost of living crisis sweeps the West, inflation is at a 40-year high of 9.1pc in the UK and a 41-year high of 8.6pc in the US. The Bank of England has raised rates from 0.1pc in December to 1.25pc now in bid to put a brake on runaway prices – though none of the five increases has been bigger than 0.25 percentage points, leading some critics to claim Britain is failing to act aggressively enough.
By contrast, the US Federal Reserve raised rates by 0.25 percentage points in March, 0.5 percentage points in May, and 0.75 percentage points this month. In a sign further hikes of this magnitude may follow, New York Federal Reserve Bank president John Williams said a further hike of 0.75 percentage points may be needed in July.