3rd Dec 2022

ECB says more rate hikes to come

  • A recession will not bring down inflation ECB president Christine Lagarde said (Photo: Council of the EU)
Listen to article

European Central Bank President Christine Lagarde has said interest rates will be increased again, to further slow down the economy and bring down inflation in the long term.

Speaking at the European Banking Congress on Friday (18 November), she also said the "risk of recession" had increased but that this alone will not bring down inflation.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

With inflation in the eurozone at 10.6 percent, Lagarde said further monetary tightening was necessary. But her admission that an economic downturn will not bring down inflation had some economists question the logic of the policy.

"Pretty insane stuff," philosopher-economist Jens van 't Klooster tweeted. "We're now heading for a central bank-inflicted recession that even on the ECB's own account will not do much to achieve price stability."

The bank has already delivered the most aggressive monetary tightening in its history. Increasing rates further risks deepening recession without curing inflation.

"But at least we will have inflicted pain?" Phillipa Sigl-Glöckner, economist and director of Dezernat Zukunft, a German macro-financial think tank, commented after the speech was published.

Explaining the move, Lagarde said higher rates are meant to display the bank's "commitment" to return to more stable market conditions, a priority for bankers and investors.

Although higher interest rates only direct domestic demand inflation — by the ECB's own data, most inflation is caused by the disrupted imports, especially food and energy — households and businesses have to believe the central bank is doing everything it can to keep inflation low.

"Our credibility is vital," Lagarde said, referring to the belief that expectations of future inflation are a key driver of actual inflation.

Inflation expectations are a central tenet of central bank policymaking, but some economists argue people base their expectations on actual economic factors rather than central bank policy announcements.

More investments

With the ECB tightening the money supply, it will become harder and more expensive for governments to invest. But governments should not reduce investments in clean energy, Lagarde said.

"Massive investments in renewables are needed" to replace Russian oil and gas, she said.

To cover these expenses, governments should produce "more with less" through innovation and increase taxes, although she did not say what governments should tax.

The ECB's governing council is scheduled to make its rate decision on 15 December.

Stakeholders' Highlights

  1. Nordic Council of MinistersCOP27: Food systems transformation for climate action
  2. Nordic Council of MinistersThe Nordic Region and the African Union urge the COP27 to talk about gender equality
  3. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  4. Friedrich Naumann Foundation European DialogueGender x Geopolitics: Shaping an Inclusive Foreign Security Policy for Europe
  5. Obama FoundationThe Obama Foundation Opens Applications for its Leaders Program in Europe
  6. EFBWW – EFBH – FETBBA lot more needs to be done to better protect construction workers from asbestos

Latest News

  1. EU must break Orbán's veto on a tax rate for multinationals
  2. Belarus dictator's family loves EU luxuries, flight data shows
  3. How Berlin and Paris sold-out the EU corporate due diligence law
  4. Turkey's EU-funded detention centres ripe with abuse: NGO
  5. In green subsidy race, EU should not imitate US
  6. EU Commission proposes suspending billions to Hungary
  7. EU: Russian assets to be returned in case of peace treaty
  8. Frontex leadership candidates grilled by MEPs

Join EUobserver

Support quality EU news

Join us