European Central Bank (ECB) Leader Christine Lagarde said that inflation is still very high and promised that policy makers will not give up their efforts to return inflation to the target level.
In his speech at the panel he attended in Davos, Lagarde used the words, “Inflation is very high no matter how you look at it. In order to bring inflation back to 2 percent on time, we will stay on this route for as long as necessary until we pass into the restrictive zone.”
With inflation hitting a new record in December and the economy doing better than expected after Russia’s attack on Ukraine, many officials remain keen to continue with rate hikes to ensure the euro era’s toughest rise in inflation is dispelled.
ECB Administrative Board members Francois Villeroy de Galhau and Klaas Knot reiterated in Davos that Lagarde’s words about the need for a half-point increase in interest rates last month are still valid today.
“The data points to a half-point increase over the next few meetings”
“We will continue at a steady pace,” Lagarde said on December 15. According to the data we have today, the next meeting points to a 50 basis point rate hike, probably at the next and the next meeting. So don’t assume it’s a one-time increase of 50 basis points.”
Knot also warned CNBC on Thursday that investors may be underestimating authorities’ determination. “It will not stop after a single rate hike of 50 basis points. That’s for sure,” he said.
Evaluating the Eurozone economy, Lagarde said that a “small contraction” is now more likely than a recession and said, “The news has become much more positive in recent weeks. It’s not a perfect year, but it’s much better than we feared.”
Despite the bright outlook, Deutsche Bank CEO Christian Sewing also said that he does not see the danger of tightening too much in the ECB’s policy and that inflation should be dealt with.
In the same panel, “Although I agree with all the comments that there is more optimism in the economy, the main problems we have in Europe, such as high inflation and some other structural reforms, have not disappeared. On the other hand, we need to watch how the opening of China affects our inflation.” made its assessment.