Belgium, (Brussels Morning Newspaper) The European Central Bank (ECB) upped interest rates by additional 50 basis points on Thursday and announced at least one more hike in March.
ECB head Christine Lagarde noted that headline inflation dropped, but warned that core inflation is still rising and reaffirmed ECB’s commitment to reining in prices, according to Reuters reporting on Thursday.
“This is the highest in all the time that core inflation has been in our part of the world,” she warned and added “headline inflation has gone down… but underlying inflation pressure is there, alive and kicking.”
Lagarde pointed out that the ECB still needs to implement measures aimed at reining in inflation “which is why we are committing… and this is why I say we have more ground to cover and we are not done.”
She reminded that the ECB target for inflation stands at 2% and added that the bank plans to achieve this meeting by meeting. Lagarde stressed that the ECB will base its decisions on data.
Broad agreement on policy
Commenting on discussions in the Governing Council, she noted “there was general agreement on the fact that the 50 basis points this time around and the 50 basis points in March were legitimate on the basis of, particularly in March, of the underlying inflation pressure that we know will continue.”
Lagarde stressed that consensus on ECB’s overall monetary policy was “very, very large” and pointed out that members of the Governing Council agree there is still a lot of work to be done.
According to plans, the ECB is to gradually up interest rates “significantly into too restrictive levels” and keep them there as long as needed to “actually deliver the 2% objective medium term that we have set for ourselves.”
Commenting on negative effects of the respond to the coronavirus pandemic, Lagarde noted “supply bottlenecks are gradually easing… and the same holds true for the lifting of pandemic-related restrictions.”
She stressed that it will take time for these disturbances to stop driving up prices, especially in the services sector, reiterating that price pressures are still strong.
As for energy prices, Lagarde pointed out that negative effects of high prices “are spreading through the economy.”