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ECB Raises Interest Rates and Anticipates Another Hike Next Month

At the ECB's policy meeting, the bank raised its interest rates and made public at least one more rate hike of the same magnitude next month.

Christine Lagarde, President of the European Central Bank
Christine Lagarde, President of the European Central Bank

ECB President, Christine Lagarde, disclosed some highlights at a news conference after the policy meeting.

No Symmetry of Risk

Lagarde believes there is no symmetry of risk, but there is a more balanced situation compared to December.

Core Inflation at an All-Time High

Core inflation has hit an all-time high, with underlying inflation pressure still kicking. Lagarde stated they still have more ground to cover, and the bank's determination to reach 2% medium-term inflation should not be doubted.

The Meaning of 'Intention'

Lagarde explained that "intention" is not a 100% commitment but a strong determination. The ECB will assess the rate and level needed to raise interest rates significantly.

There was a general agreement on the 50 basis points hike this time and another 50 basis points hike in March, particularly on the underlying inflation pressure that will continue. However, there was discussion, and not full agreement, on how the ECB communicates its decision.

Continuity and Consistency

Lagarde believes that "we shall stay the course" or "the Governing Council will stay the course" is a good way to express the double principle of continuity and consistency.

Christine Lagarde, President of the European Central Bank
Christine Lagarde, President of the European Central Bank

Inflation Outlook Risks

The risks to the inflation outlook have become more balanced. A further weakening of demand may contribute to lower price pressures than anticipated, especially over the medium term.

Future Price Pressures

The pent-up demand is still driving up prices, particularly in the services sector. Price pressures remain strong, partly due to high energy costs spreading throughout the economy.

Underlying Inflation

Other indicators of underlying inflation remain high.

Economic Outlook

The risks to the outlook for economic growth have become more balanced. The economy has proved more resilient than expected and should recover over the coming quarters.

Rolling Back Govt Support

As the energy crisis becomes less acute, the government needs to start rolling back measures promptly in line with the fall in energy prices and a concerted manner. Failure to do so will likely drive up medium-term inflationary pressures, calling for a stronger monetary policy response.

Resilient Economy

Output in the services sector has been holding up, supported by continuing reopening effects and stronger demand for leisure activities.

Weak Growth

Economic activity has slowed markedly since mid-2022, and it is expected to remain weak soon.