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ECB Ready to Stamp Out Inflation 06/28 06:11
The head of the European Central Bank said Tuesday that it will move
gradually to combat soaring consumer prices with interest rate hikes in July
and September but will keep its options open to "stamp out" inflation if it
surges faster than expected.
SINTRA, Portugal (AP) -- The head of the European Central Bank said Tuesday
that it will move gradually to combat soaring consumer prices with interest
rate hikes in July and September but will keep its options open to "stamp out"
inflation if it surges faster than expected.
In a speech opening an ECB forum on central banking in Sintra, Portugal,
bank President Christine Lagarde used strong terms as policymakers target
inflation running at a record 8.1% in the 19 countries using the euro. With new
inflation figures due out Friday, Lagarde said the bank is using the dual
approach to be able to respond to economic uncertainty.
Russia's war in Ukraine has led to surging energy and food prices that are
higher than those seen in the 1970s and '80s, and "given its energy dependence,
the euro area is experiencing these shocks acutely," Lagarde said.
"The size and complexity of these shocks are also creating uncertainty about
how persistent this inflation is likely to be," she said.
The bank has already announced it will end asset purchases that worked to
boost the economy on Friday, and follow with its first interest rates hikes in
11 years at its meeting next month. It will also raise rates in September but
is leaving the option open for a bigger hike than the quarter-point increase in
July, in case inflation keeps spiking.
The ECB also is trying to avoid further hurting economic growth by acting
too aggressively, having "revised markedly down our forecast for growth in the
next two years," Lagarde said.
But "there are obviously conditions in which gradualism would not be
appropriate. If, for example, we were to see higher inflation threatening to
de-anchor inflation expectations or signs of a more permanent loss of economic
potential," she said, "we would need to withdraw accommodation more promptly to
stamp out the risk of a self-fulfilling spiral."
Other central banks around the world, including the U.S. Federal Reserve,
have moved quicker than the ECB to combat runaway inflation. But they face the
threat of spurring a recession as they make borrowing more expensive, with Fed
Chair Jerome Powell acknowledging last week that "it's certainly a possibility."
The Fed has raised rates three times this year, including an increase of
three-quarters of a point that marked its biggest hike in nearly three decades,
and has more planned. The Bank of England has raised rates five times since
December.
Powell and Bank of England Governor Andrew Bailey will join Lagarde for a
policy panel discussion at the ECB forum on Wednesday.
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