Hike rates

Expect the ECB to hike rates in ‘upcoming meetings’

By Scott Kanowski

Investing.com — European Central Bank Expected to Raise interest rate further in its “upcoming meetings” in a bid to curb soaring inflation, according to ECB President Christine Lagarde.

Speaking at a hearing of the European Parliament’s Economic and Monetary Affairs Committee, Lagarde said the hikes will help dampen demand, which would theoretically cool consumer price growth.

Lagarde added that higher borrowing costs “will hedge against the risk of a persistent rise in inflation expectations.” The ECB’s benchmark estimates for annual eurozone inflation have been revised up considerably, with the central bank now seeing the figure at 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024.

Inflation hit a record high of 9.1% year-on-year in August, boosted in particular by soaring energy prices resulting from Russia’s decision to clamp down on key gas exports in response to Western sanctions following the outbreak of war in Ukraine. Economists estimate that prices in the region will rise by a new record 9.7% this month.

“Pricing pressures are spreading to more sectors, in part because of the impact of high energy costs on the broader economy,” Lagarde told lawmakers in Brussels.

“Risks to the outlook for inflation are mainly on the upside, primarily reflecting the possibility of further major disruptions in energy supply.”

The depreciation of the euro, which fell below parity with the dollar as investors worried about the outlook for the eurozone economy, also added to inflationary pressures, Lagarde said.

Meanwhile, Lagarde predicted that wage growth, although contained for the time being, will eventually accelerate to “offset” the rise inflation.

She added that economic growth in the currency bloc is expected to slow “significantly” in the coming quarters as inflation, along with a series of subsequent rate hikes by central banks around the world, will cause consumers to limit their expenses. A post-pandemic recovery in the services sector is also seen as “losing steam”.

Finally, uncertainty about the future of the euro zone remains high, Lagarde said, as evidenced by falling consumer and business confidence. Earlier Monday, a monthly survey showed that companies feeling in Germany – Europe’s largest economy – had fallen to its lowest level since the early days of the pandemic.

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