ECB increases rates again despite 'looming recession'
Frankfurt, Germany – The Euro
pean Central Bank announced another jumbo interest rate hike
on Thursday and said further increases would follow to combat soaring inflation, even as its president, Christine Lagarde, acknowledged that a recession was looming.
The ECB'S 25-member governing council repeated last month's move with another bumper increase of 75 basis points, leaving its three main rates sitting in a range of between 1.5 and 2.25 per cent.
"We will have further rate increases in the future," Lagarde said. "There is still ground to cover."
The Frankfurt institution is under pressure to rein in recordhigh inflation, driven by surging
food and especially energy prices in the wake of Russia's war in Ukraine.
Eurozone inflation stood at 9.9 per cent in September, nearly
five times the ECB'S two-per cent target.
Inflation "remains far too high", Lagarde said.
Like other central banks, the ECB is fighting back with a series
of rate hikes intended to dampen demand by making credit more expensive for households and businesses.
But higher borrowing costs also weigh on economic activity, and the outlook for the 19-nation currency club has deteriorated significantly.
"The likelihood of recession (is) looming much more on the
horizon," Lagarde told a press conference, while inflation may
not have peaked.
"Obviously we're concerned, particularly about those who have low income," she said.
Capital Economics analyst Jack Allen-reynolds said the pace of future hikes would likely be slower, predicting a 50 basispoint increase at the December meeting.
"If we are right that the forthcoming downturn will be deeper than most expect, policymakers might... become more cautious about tightening policy," he said.
Moscow's decision to drastically curb gas supplies to Europe has triggered an energy crisis on the continent, fuelling fears of power shortages and sky-high heating bills this winter.
As European governments race to unveil multi-billion-euro support measures to help citizens through a cost-of-living squeeze, the ECB'S response has faced criticism.
Italian Prime Minister Giorgia Meloni earlier this week said the aggressive rate hikes created "further difficulties for member states that have elevated public debt".
French President Emmanuel Macron expressed "concern" that the ECB was "shattering demand" in Europe.
But Lagarde defended the bank's third rate increase of the year, after a decade of historically low and even negative rates.
"The decision that we made today is the most appropriate in
order to restore price stability," she said, which is "critically important... also for the economy to actually prosper and recover".
The former French finance minister also cautioned governments against adding to their debt pile, saying support meas
ures should be "temporary and targeted at the most vulnerable".
In response, Italy's new Economy Minister Giancarlo Giorgetti struck a more conciliatory tone, voicing confidence in "the ECB'S wisdom to interpret the causes of the recent surge in inflation and to take into account the current slowdown in the European economy".