AP

Lagarde warns ECB may do more to rates than remove stimulus

Nov 17, 2022, 12:42 PM | Updated: Nov 18, 2022, 4:46 am

Christine Lagarde, President of the European Central Bank (ECB), speaks at the European Banking Con...

Christine Lagarde, President of the European Central Bank (ECB), speaks at the European Banking Congress in the Alte Oper (Old Opera) in Frankfurt, Germany, Friday, Nov. 18, 2022. The 32nd European Banking Congress is being held in Frankfurt under the motto 'Coping with transformational change'. (Hannes P. Albert/dpa via AP)

(Hannes P. Albert/dpa via AP)

FRANKFURT, Germany (AP) — European Central Bank President Christine Lagarde warned Friday that the bank may have to raise interest rates beyond merely withdrawing stimulus and into territory that could restrain growth as the bank fights to control record inflation in the 19 countries that use the euro.

“We expect to raise rates further, and withdrawing accommodation may not be enough,” Lagarde said in a speech at a banking forum in Frankfurt, Germany. She said the bank intended to bring inflation down “in a timely manner” and that “how far we need to go, and how fast, will be determined by the inflation outlook.”

The ECB has raised rates at the fastest pace in its history to combat inflation that hit 10.7% in the eurozone in October, the highest since statistics started being kept in 1997 and far above the bank’s goal of 2%.

Inflation has been fed by high natural gas prices caused by Russia’s cutbacks in gas supply during the war in Ukraine and by bottlenecks in supplies of parts and raw materials as demand rebounds from restrictions imposed during the coronavirus pandemic.

In response, the central bank has lifted its benchmarks by two full percentage points since July. Analysts expect more increases to come from a Dec. 15 meeting.

Lagarde cautioned governments against excessive spending on support for consumers and businesses hit by high energy costs, saying that such financial assistance needed to be temporary and targeted at the people most in need of help. Otherwise, spending could push up demand and thus inflation, and weaken incentives for people to conserve energy.

Higher central bank interest benchmarks influence the cost of lending, raising the price of credit and making it more expensive to borrow, spend or invest, thus reducing demand for goods and, in theory, restraining prices.

While higher rates are a key tool to contain inflation, their use can raise concerns about the impact on growth. The eurozone economy grew only 0.2% in the July-September quarter.

Many economists are predicting a recession at the end of this year and the start of next year as inflation robs consumers of purchasing power. Bank officials say higher rates now will avoid the need for even more drastic measures later on if inflation continues to run out of control.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Image: A cargo ship is stuck under the part of the structure of the Francis Scott Key Bridge after ...

Associated Press

Authorities identify 2 bodies recovered at site of Baltimore bridge collapse

A major bridge in Baltimore snapped and collapsed after a container ship rammed into it early Tuesday, and several vehicles fell into the river below.

24 hours ago

Photo: Mountaineer Jim Whittaker has died at 95....

Gene Johnson, The Associated Press

Lou Whittaker, among the most famous American mountaineers, has died at age 95

Lou Whittaker, a legendary American mountaineer who helped lead ascents of Mount Everest, K2 and Denali, has died at age 95.

1 day ago

File photo: Former Sen. Joe Lieberman speaks in Washington on Jan. 18, 2024....

Associated Press

Former Sen. Joe Lieberman, Democrats’ VP pick in 2000, dead at 82

Former U.S. Sen. Joe Lieberman of Connecticut, who nearly won the vice presidency on the Democratic ticket with Al Gore in 2000, has died.

1 day ago

islamic state attack...

Vanessa Gera, The Associated Press

What we know after the Islamic State group claims responsibility for Moscow massacre

The Islamic State group has claimed responsibility for an attack on a suburban Moscow concert hall that killed at least 133 people.

4 days ago

Moscow shooting...

The Associated Press

Russia: 60 dead, 145 injured in concert hall raid; Islamic State group claims responsibility

Assailants burst into a concert hall in Moscow on Friday and sprayed the crowd with gunfire, killing over 60 people, injuring more than 100.

6 days ago

Photo: Britain's Kate, Duchess of Cambridge visits 282 (East Ham) Squadron, RAF Air Cadets, Cornwel...

Associated Press

Kate Middleton announces she has cancer, is undergoing chemotherapy

Kate Middleton, Princess of Wales, says she is undergoing chemotherapy to treat cancer. She has been out of view since Christmas.

6 days ago

Lagarde warns ECB may do more to rates than remove stimulus