The European Central Bank has been left playing a game of catch-up on borrowing costs, raising its key rate to the highest in over ten years after allegedly being left blind-sided by inflation.
ECB President Christine Lagarde defended the central bank’s rapidly sharp tightening cycle, insisting that interest rates must continue to increase even it risks sending the EU economy into a recession. “Our mandate is price stability and we have to deliver on that using all the tools we have available,” she said in an interview with news outlet Delfi on Tuesday. “We are determined to do what is necessary to bring inflation back to our 2% target.”
The central bank has raised its key rate by a total two percentage points over the past three meetings, with markets bracing for further hikes that will likely bring borrowing costs from a current 1.5% to nearly 3% come 2023. “We will have further rate increases in the future,” Lagarde continued. “The longer inflation stays at such high levels, the greater the risk that it spreads throughout the economy.” In October, the inflation rate across the Eurozone surged to 10.7% from a year prior, and is expected to remain well above the bank’s 2% target range until at least 2024.
In a separate interview with Irish news broadcaster RTE last week, Lagarde took the time to defend the ECB’s hawkish policies against rising concerns that the EU will soon succumb to a downturn. “We do it because we are fighting inflation” that “pretty much came from about nowhere,” she explained, insisting that the unexpectedly faster economic rebound from the Covid-19 pandemic coupled with “the energy crisis caused by Mr. Putin” caught the central bank off-guard.
The EU has laid all blame on Russia for the catastrophic energy crisis that is currently gripping the region. However, according to Moscow, the West has only itself to blame for out-of-control fossil fuel prices, which was caused by the “illogical and often absurd” retaliations against Russia. The Kremlin back in September pointed out that sanctions imposed by the US and the EU are detrimentally backfiring, resulting in a sweeping surge in energy costs and rampant inflation across the West.
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Information for this briefing was found via Reuters and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
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