The European Central Bank (ECB) will continue to increase the price of money until inflation, from 8.6% in the euro zone, drops to 2%. Thus, it is “very likely” that the banking supervisor will decide a new rise of 50 basis points at its next meeting, scheduled for March 16, as confirmed today by its president, Christine Lagarde, in an interview with the program “Espejo Público” of Antena 3, in which he has also left the door open to more increases this year.
“Right now it is very possible that we continue on this path,” Lagarde said. The final decision, he added, will be determined by the data, although “what we have for sure is that we will do everything necessary to bring inflation down to the 2% target.” And “we don’t want to lower the rates and have to raise them again”, she has qualified. At the moment, inflation in the euro zone does not let up. Although it has fallen one tenth compared to January -standing at 8.6% in February-, the figure is three tenths higher than that predicted by the market.
The rise in rates has a direct consequence on the Euribor, which in the last ten months has gone from being negative to reaching 3.53% in February. “Interest rates will not return to where they were three or four years ago,” the Frenchwoman assured, while pointing out that the institution’s projections suggest that inflation in the euro area will return to the stability goal of 2% ” in 2025″. And only then “the rates will be able to be reduced”, said Lagarde, who has also been convinced that prices will fall, although inflation “will take time to reduce”, fostered by the rapid recovery after the pandemic and the Ukrainian war.
Asked about the difficulties that many families are having due to the increase in the price of variable mortgages, the President of the ECB recalled that the central bank does not have the capacity to regulate the mortgage market, since this corresponds to the national authorities. However, she has recommended citizens to renegotiate the terms of their mortgages with entities to avoid risks.
When asked if the ECB will follow in the footsteps of the US Federal Reserve, which plans to increase rates above 5%, Lagarde replied that it will depend on the impact of the central bank’s measures on the economy and on the evolution of the data.
Another of the issues that Lagarde has assessed is the VAT reduction on food introduced in Spain to combat high inflation rates, which especially affects the food group, which has risen by 15.4% in the last year. In this sense, the banker has warned that the measure “is not the ideal tool”. “I was finance minister in France, and I know that reducing VAT is one of the easiest tools to lower the price of food,” she explained, but “it has two problems”: the first is that it is not a progressive measure, since “it benefits everyone, rich or poor, when it should go to the most vulnerable”; the second is that it reduces state revenue. “Sooner or later it will have to be increased again, because the State needs this income, and when it is increased again it causes an increase in prices.”
