ECB: inflation will continue for a long time

The European Central Bank has announced that inflation in the euro area will remain “very high for a long time” after significantly raising its price growth forecast for 2022 and 2023 amid high energy prices.

The central bank expects inflation to exceed 8 percent this year, compared to 6.8 percent in June.

Inflation is projected for 2023 and 2024 at 5.5% and 2.3% respectively, still above the 2% target.

In light of this, the European Central Bank has decided to accelerate the tightening of its monetary policy by raising its main interest rate by 75 basis points for the first time since its inception two decades ago.

For reference, in the context of the abundance of liquidity, interest on bank deposits in the Central Bank in July moved from -0.5% to zero percent, and then increased to 0.75 percent.

The other two main rates, the first applied to banks on multi-week refinancing operations and the other targeting daily margin lines, are raised to 1.25% and 1.5% respectively.

This increase should encourage savings and reduce consumption to ease pressure on prices.

But the head of the European Financial Institute, Christine Lagarde, said that interest rates are still “far” from the level that “will help bring inflation down to 2 percent.”

After the meeting of the Board of Governors, she added that despite this historic increase, subsequent increases, which will be “data driven” by the economy, “should be of a size that brings us closer to this goal,” and stressed: “We will continue to raise rates.” .

Source: AFP

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