The Strategist

Head of ECB expects raising rate above neutral level

09/21/2022 - 09:50

To combat unacceptably high inflation, the European Central Bank may have to increase interest rates to a point where they restrict economic expansion, said ECB President Christine Lagarde.

The key rate consistent with our goal would be in restrictive area, she added, if there was any belief that strong inflation posed a threat to our ability to keep inflation expectations in check.

ECB policymakers have talked about a pause in the rate hike cycle, with the ECB reaching a so-called "neutral" level that neither stimulates nor constrains economic growth, but a growing number of Governing Council decision-makers now see the risk of having to raise the rate higher.

Inflation is already above 9% and may continue to rise, while long-term inflation expectations, a key focus for rates, are now climbing above the 2% target.