FRANKFURT – The European Central Bank expects to keep hiking interest rates to combat soaring inflation, its president Christine Lagarde said Monday, even as economic activity slows and fears of recession mount.
The ECB raised its rates by a record 75 basis points this month after eurozone consumer prices hit an all-time high, driven by soaring energy costs following Russia’s invasion of Ukraine.
Addressing a committee of the European Parliament in Brussels, Lagarde reiterated there was more to come.
“We expect to raise interest rates further over the next several meetings to dampen demand and guard against the risk of a persistent upward shift in inflation expectations,” she said.
She added that the ECB expects “activity to slow substantially in the coming quarters,” due to high inflation, coupled with slowing consumer demand as central banks lift borrowing costs worldwide.
Lagarde noted that ECB projections were still forecasting growth for the 19-member eurozone in 2023.
But she added that in the “downside scenario,” the eurozone may slip into a recession.
“Given the level of uncertainty... it’s difficult to predict what the real outcome will be in (2023),” she said.
“But it will be certainly a difficult year.”
She added that “higher energy and food prices are weighing in particular on the most vulnerable households and the situation is expected to get worse before it gets better.”
However, any measures to support such households should be “temporary and targeted,” she added.
Eurozone inflation climbed to 9.1 percent in August, a record high and way above the ECB’s two-percent target.
Concerns are growing about a looming recession, particularly in Germany, with a string of surveys predicting that Europe’s economic powerhouse is heading for a contraction.
Price rises have been spurred by soaring energy costs after Russia cut crucial gas supplies as tensions soared with Europe following the outbreak of war in Ukraine.