ECB, Inflation Fight Still Priority... "Baby Step Next Month"

As core inflation acts as a stumbling block in Europe, where inflation is being suppressed, attention is focused on the interest rate path of the European Central Bank (ECB). Christine Lagarde, President of the ECB, forecasted additional hikes, saying, "There is still a long way to go in the fight against inflation." While the prevailing view is that the ECB will continue to raise interest rates at the monetary policy meeting scheduled in two weeks, there are also forecasts that the tightening will end in July.

According to Bloomberg on the 20th (local time), ECB President Lagarde said at an event held in Paris that "inflation has remained too high for too long," and "there is still more to be done (to suppress inflation)." She added, "The length of the (tightening) path may vary depending on several factors, especially the credit (tightening) variables resulting from the recent banking crisis."

[Image source=Reuters Yonhap News]

President Lagarde reaffirmed the rate hike stance after raising the benchmark interest rate by 0.5 percentage points to 3.5% at the monetary policy meeting held on the 16th of last month (local time), saying, "If the inflationary trend continues when the uncertainty of the banking crisis decreases, there is room for further rate hikes." The ECB has raised the benchmark interest rate six times in total since starting with a 0.5 percentage point increase in July last year.

Within the ECB, there is general agreement that interest rates should be raised once more at the monetary policy meeting scheduled for the 3rd to 4th of next month. Philip Lane, Chief Economist of the ECB, said, "Although tensions in the financial sector, supply chain disruptions, and the energy crisis have all eased, a more detailed picture of the inflation trend is needed," adding, "Another rate hike next month is appropriate."

The issue is whether to maintain a big step or slow down to a baby step. Bloomberg reported that the ECB's most aggressive tightening in history is nearing its end, stating, "At the next monetary policy meeting in two weeks, the ECB's options will be either a 0.25 percentage point increase or a 0.5 percentage point increase."

The variable is the speed of inflation slowdown. Core inflation, which the ECB is closely monitoring, shows no sign of easing yet. Although the inflation rate in the Eurozone (20 countries using the euro) has significantly slowed down this year, the core inflation rate excluding volatile items such as energy and food remains in the mid-5% range, and this trend is expected to continue until June.

The confirmed Eurozone Consumer Price Index (CPI) for March, released the day before Lagarde's remarks, was 6.9%, the lowest level since February last year, but the core inflation rate was 5.7%, still setting monthly records. Joachim Nagel, President of Germany's central bank, Bundesbank, pointed out, "Inflation is still too high, and more action on interest rates is needed."

Experts also expect at least three more rate hikes this year. Bloomberg cited a survey of economists conducted on the 16th, reporting that the ECB is expected to raise interest rates by 0.25 percentage points each in next month, June, and July before ending aggressive quantitative tightening. The US investment bank Goldman Sachs also revised its forecast, saying the ECB's terminal rate will rise from 3.5% to 3.75%.

This content was produced with the assistance of AI translation services.