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Monday, April 15, 2024
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Lagarde warns that the interest rate cycle in the 4.5% area may be long

Date: April 15, 2024 Time: 18:17:53

The door of the European Central Bank (ECB) to the ceiling of the increase in interest rates is open, but the cycle of reductions does not seem close. Linking it as always to the evolution of the data and after placing the price of money at 4.5% after increasing it by 25 basis points, Christine Lagarde wanted to insist that if the cycle of promotions has ended, it will be necessary to maintain these levels of interest rates. interest for a long period so that inflation returns to objective levels, which is that price growth is at 2%.

The president has also acknowledged that there has been no consensus within the Governing Council of the ECB regarding the increase in the price of money approved this Thursday and that some members were betting on approving a break and waiting to see the evolution of the data. However, she has specified that there has been a “solid majority” that has chosen to approve the new increase.

In parallel with the decision on the price of money, the ECB has revised and raised its inflation forecasts for 2023 and 2024, warning that the price of energy prices is behind the increase. Lagarde, later in a press conference, insisted that the increase in the cost of food remains very high, pointing out that it was at the level of 10%. The GDP growth rates have also been revised, but this time downwards.

Two of the risks that the central bank has pointed out as generating inflation have been the upward revisions of salaries and business margins. This is not the first time that Lagarde has expressed concern about the impact on the euro zone CPI of the increase in labor costs, a message accompanied by the warning that monetary tightening is already having an impact on domestic demand.

This factor, together with the weakening of international trade, has led the Frankfurt-based organization to lower its GDP forecasts for this year, to 0.7%. The positive note is that a rebound is expected for the next year, given the perspective that the labor market will remain “strong”, despite the fact that at the moment it shows signs of deceleration, especially in the services sector.

“Our previous interest rate increases continue to be transmitted strongly. Financing conditions have tightened even more and increasingly slow down demand, which is an important factor for inflation to return to the target,” added the head of monetary policy in the eurozone.

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Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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