Lagarde: “The ECB must continue its cycle of rate increases”

According to ECB President Christine Lagarde, the bank will need to continue its cycle of interest rate hikes to help contain persistently high inflation.

Lagarde reiterated her earlier claim that "inflation is too high and it is set to remain so for too long" in a speech she gave in Germany. She said the bank must continue to raise borrowing costs to "sufficiently restrictive levels."

She acknowledged that the increase in rates is causing bank lending standards to tighten, but she noted that it is still unclear "how much stronger the transmission of ECB policy will be."

Lagarde said that the ECB must continue its historically high rate hike programme until policymakers are certain that inflation is on track to return to its medium-term objective of 2%.

According to some analysts, the ECB's deposit rate might go to at least 3.75% by July, matching an all-time high hit in 2001.

The remarks follow preliminary data showing that the CPI for the Eurozone increased by less than anticipated on an annual basis in May. The core number, which is carefully watched by the ECB and excludes volatile goods like food and energy, also increased at a slower rate than many analysts projected.

The European Central Bank predicted that annual average headline inflation would not return to 2% until the second half of 2025 at its most recent meeting when rates were increased by 25 basis points. Lagarde did note that the bank is unable to declare itself "satisfied" with this forecast at this time.

(Sources: investing.com, reuters.com)