Comments by Christine Lagarde come after central bank
raises interest rates for seventh time in succession
Richard
Partington and Graeme Wearden
Thu 4 May
2023 15.16 BST
The
president of the European Central Bank has suggested companies are taking
advantage of high inflation when increasing prices, after the bank raised
interest rates by a quarter of a percentage point to tackle the cost of living
surge.
Christine
Lagarde said wage pressures in the eurozone had strengthened, as workers try to
recoup some of the purchasing power they have lost due to inflation, but she
hinted some firms were engaging in so-called greedflation.
She said:
“In some sectors, firms have been able to increase their profit margins on the
back of mismatches between supply and demand, and the uncertainty created by
high and volatile inflation.”
The
interest rate rise marked the seventh successive increase in borrowing costs in
the single currency bloc, and came after the US Federal Reserve raised rates to
the highest level in 16 years on Wednesday despite concerns about the worst
banking crisis since 2008.
The latest
increase pushes the ECB’s deposit rate up to 3.25%. The refinancing rate rose
by a quarter of a percentage point, to 3.75%. The central bank, responsible for
managing inflation across the 19-member bloc, has steadily increased its
deposit rate from -0.5% last summer.
However,
the increase marks a slowdown from rises of half a percentage point used by the
ECB in previous months, raising the prospect of the central bank entering the
final stage of its most aggressive assault on inflation since the start of
monetary union in 1999.
“While
today’s hike is the seventh increase in a row, it is the smallest in the
current cycle, suggesting that the ECB has entered the final stage of this
tightening cycle,” said Carsten Brzeski, the global head of macro at the Dutch
bank ING.
Financial
markets had widely expected a rise after eurozone inflation increased for the
first time in six months, to 7% in the year to April. Despite a drop in core
inflation – which excludes volatile items such as energy and food, and is
closely watched by rate setters – from a eurozone record of 5.7% in March to
5.6%, the central bank warned underlying inflationary pressures remained
strong.
Lagarde suggested
the job on bringing down inflation was not yet done. “The inflation outlook is
too high and has been so for too long,” she said.
The ECB
stood ready to raise interest rates further to ensure that inflation returns to
its 2% target over the medium term, she said, although it would also monitor
closely the strength of the economy and impact of past rate increases. “We are
not pausing. That’s very clear … We know we have more ground to cover.”
Central
banks around the world have responded to soaring inflation after the Covid
pandemic and Russia’s invasion of Ukraine with the most aggressive round of
interest rate rises in decades. However, the latest round of increases comes
despite concerns over the fallout from the worst turbulence in the banking sector
for years.
Three US
banks have failed in the space of two months, with the California-based lender
First Republic the latest to collapse on Monday. Regulators brokered a deal for
JP Morgan to buy most of the bank’s assets and deposits.
Lagarde
said renewed financial market tensions, if persistent, would “pose a downside
risk to the outlook for growth,” because they could further tighten the
availability of credit to businesses and households.
Economists
and investors expect the Bank of England to follow suit when its policymakers
meet on Thursday next week, with predictions of a quarter-point rise from the
current level of 4.25%. Threadneedle Street has raised rates 11 times in a row
since December 2021, while Britain faces the highest inflation in the G7.
.jpeg)
.jpeg)
Sem comentários:
Enviar um comentário