The downside risks of the European economy are growing, but with inflation rising to almost 10% in September, the European Central Bank continued to raise interest rates.
After raising interest rates by 75 basis points across the board, ECB President Christine Lagarde said the committee had tightened financial conditions and more work needed to be done. "There is still a field to cover," she said.
"In the current state of uncertainty, with the possibility of a recession rising, everyone has to do their job," Lagarde said. "Our job is price stability. This is our main task."
Interest rates are expected to rise by early 2023. But Lagarde didn't say how high the stakes would be. Reiterating that future policy rate decisions will continue to be data-driven and meeting-by-meeting.
The increase in interest rates is due to the fact that the ECB continues to see further risks to economic activity until the end of the year.
"Eurozone economic activity is likely to slow significantly in the third quarter of the year, and we expect further weakening for the remainder of this year and early next year. High inflation continues to hold back spending and production. Serious disruptions to gas supplies have further worsened the situation, and both consumer and business confidence has fallen rapidly, which is also putting pressure on the economy," Lagarde said in her opening remarks.
However, price stability and bringing inflation down to the ECB's medium-term target of 2% is the central bank's priority.
While soaring energy and food prices are the two biggest drivers of inflation, the ECB is forecasting a general rise in consumer prices.
"Inflation remains too high and will remain above our target for an extended period," Lagarde said.
"Incoming data confirms that the risks to the economic growth outlook are clearly abating, especially in the near term," she added.
However, price stability and bringing inflation down to the ECB's medium-term target of 2% is the central bank's priority.
Although the sharp rise in energy and food prices is the most significant driver of inflation, the ECB predicts a widespread increase in consumer prices.
"Inflation remains too high and will remain above our target for an extended period," Lagarde said. - The risks for the inflation forecast are primarily positive. The main risk for the nearest period of time is a further increase in retail prices and energy prices. In the medium term, if energy and food prices rise, inflation may be higher than expected."
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