ECB head warns more drastic rate hikes possible

FRANKFURT, Germany – European Central Bank President Christine Lagarde warned Friday that the bank may have to raise interest rates beyond merely withdrawing stimulus and into territory that could restrain growth as the bank fights to control record inflation in the 19 countries that use the euro.

“We expect to raise rates further, and withdrawing accommodation may not be enough,” Lagarde said in a speech at a banking forum in Frankfurt, Germany. She said the bank intended to bring inflation down “in a timely manner” and that “how far we need to go, and how fast, will be determined by the inflation outlook.”

The ECB has raised rates at the fastest pace in its history to combat inflation that hit 10.7% in the eurozone in October, the highest since statistics started being kept in 1997 and far above the bank’s goal of 2%.

Inflation has been fed by high natural gas prices caused by Russia’s cutbacks in gas supply during the war in Ukraine and by bottlenecks in supplies of parts and raw materials as demand rebounds from restrictions imposed during the coronavirus pandemic.

In response, the central bank has lifted its benchmarks by two full percentage points since July.