Although markets have started to price out some rate hikes, ECB policy-makers warned that another increase in December was certain and the deposit rate could then continue to rise
European Central Bank policy-makers stood firmly behind plans to keep raising interest rates even at a cost to economic growth, as data on Friday showed rising inflationary pressures.to 1.5 per cent on Thursday and promised more tightening in the months to come in a bid to prevent sky high inflation from getting entrenched, rebuffing government criticism that it was exacerbating a likely recession.
“We will cross the neutral rate – regardless of where anyone currently sees it – like a runaway train,” Kazimir, Slovakia’s central bank chief, said. “We need to get monetary policy into the so-called restrictive environment, at least for a certain period.” Inflation, running at almost 10 per cent, is seen falling only to 5.8 per cent in 2023, above the ECB’s own projection for 5.5 per cent, then holding at 2.4 per cent in 2024.
Italian inflation meanwhile soared to 12.8 per cent in October, far outpacing expectations for 9.9 per cent while French price growth was also well above forecasts. The hawkish ECB commentary comes as a recession looks now almost certain, prompting a barrage of criticism from European leaders. ECB chief Christine Lagarde pushed back on the criticism on Thursday, arguing that breaking inflation was the ECB’s chief mission and governments could help by providing targeted support for the most vulnerable.