The European Central Bank (ECB) will raise interest rates in the euro area in July to fight against high inflation. So said ECB President Christine Lagarde at the annual meeting of central bankers in Sintra, Portugal.
According to Lagarde, it is also unlikely that the ECB will be able to say that interest rates have peaked in the short term. This seems to be preparing for further increases after July.
The ECB raised key interest rates again by a quarter of a percentage point earlier this month. The central bank wants to slow down the economy by raising interest rates because borrowing becomes more expensive. That should dampen demand for goods and price increases. The ECB has already raised its key interest rate at a record pace, from a negative rate of 0.5 percent last year to 3.5 percent.
After the July meeting, the ECB will take a summer break. There will be a new interest rate decision on September 14. During explaining the interest rate decision earlier this month, Lagarde did not say much about a possible increase in September.
During her speech in Sintra, Lagarde also said that the ECB should “clearly communicate that interest rates will have to remain at the higher levels for as long as necessary”. The ECB should thus prevent the markets from counting on a rapid policy reversal and speculating on interest rate cuts. This should also ensure that the full impact of the previous interest rate hikes becomes clear.
According to Lagarde, the first effects of the rate hikes are already visible, particularly in the manufacturing and construction sectors, which are more sensitive to higher borrowing costs. At the same time, the ECB president warned that inflation is expected to be driven by wage catching up, so the battle against price increases is not yet over.