Inflation soars, ECB raises interest rates for the first time since 2011

Chairperson ECB Christine Lagarde said on June 9 that the increase would be 0.25 percentage points in July. This level is in line with what most analysts had expected.

It is expected that another increase will take place in September 2022. This rally can be greater than 0.25 percentage points if inflationary “continues or worsens”.

The announcement marks the ECB’s first rate hike since 2011 and closes a long chapter of accommodative monetary policy.

“High inflation is a big challenge for all of us,” Lagarde said after the Governing Council meeting in the Netherlands. gradual but sustainable would be appropriate”.

ECB President Christine Lagarde. Photo: Reuters

For months, Ms. Lagarde has used the word “temporary” to describe rising inflation. However, economic forecasts have been turned upside down, and this trend has been exacerbated since Russia launched a special military operation in Ukraine on February 24. Euro News.

The Russia-Ukraine crisis disrupted the new supply chain, contributing to the skyrocketing inflation of fines. Indeed, inflation in the Eurozone hit a record 8.1% in May, more than four times the annual 2% target set by the ECB.

Consumers and companies are currently faced with unpredictable prices. That puts pressure on policymakers to come up with tangible solutions, even if they are unlikely to do much in the short term.

Inflation is haunting other advanced economies whose banks have signaled their intention to raise interest rates before inflation soars.

The ECB expects inflation to remain “unavoidably” high for the next few years: 6.8% in 2022, 3.5% in 2023 and 2.1% in 2024.

“The Russia-Ukraine conflict is seriously affecting the Eurozone economy and the prospect of economic recovery remains uncertain,” Lagarde emphasized. further growth and recovery in the medium term”.

The ECB President believes that the lifting of Covid-19 restrictions, the restoration of the labor market, financial support and people’s savings during the pandemic are factors that can help the economy develop. growth, albeit at a more modest rate than previously expected.