The European Central Bank’s (ECB) fight with inflation isn’t over and more action is still required, according to President Christine Lagarde.
While inflation is well down from its double-digit peak, the outlook could face “significant upside risks,” Lagarde told Japan’s Nikkei newspaper in an interview published Wednesday. The ECB must be particularly attentive to wage pressures, she said.
“We have moved in a very deliberate and decisive way in order to fight inflation,” Lagarde said. Even so, “we still have more ground to cover.”
After slowing the pace of its unprecedented monetary-tightening campaign last week, the ECB has been stressing that the hikes aren’t over yet. Inflation remains far above the 2% target and some officials say they want to see a concrete turnaround in the core gauge, which excludes food and energy costs, before pausing rate increases.
Underlying price gains eased a touch in April, the first dip in 10 months, but remain elevated. Most economists reckon the ECB will raise its deposit rate twice more, in June and July, leaving it at a peak of 3.75 per cent.
“We’re not yet done with rate hiking,” Bundesbank chief Joachim Nagel told German radio earlier on Wednesday, though he said policymakers are “coming to the home stretch.” Greece’s Yannis Stournaras said increases would definitely end this year.
Speaking on Tuesday evening, Executive Board member Isabel Schnabel said the ECB will continue lifting borrowing costs “with full determination until there are signs that core inflation is also falling on a sustained basis.”
She sought to cool expectations for cuts in the months after the so-called terminal rate is reached – echoing remarks by Latvia’s Martins Kazaks, who told Bloomberg this week that investors are wrong to bet on reductions early next year.
Commenting on the economic trajectory in the 20-nation euro zone, Lagarde said a recession isn’t the baseline scenario. – Bloomberg
